The Unbalanced Office Market

Since 2001 the Dutch office market is dominated by oversupply. The huge office construction output could not be absorbed by the space market. This led to a high vacancy of newly constructed offices and a dramatic decline of further office construction. At the demand side office employment and the amount of square meters per full time equivalent office user are declining. Since 2003 the demand for expansion of the office stock is less than zero. All market absorption of newly constructed offices is used for replacement. Vacancy is gradually shifting from the first hand to the second hand office stock. The vacancy of existing offices is about 12% of total stock and another 3% is vacancy of newly constructed offices. The asset market did not react on the worsened market with higher target yields. They seem to compensate vacancy and rental risks with low real cost of ownership due to low real interest. The relation chain from space market to asset market and to construction market ultimately leads to an unbalance of supply and demand of stock. The oversupply of offices is an advantage for users, but from social, environmental and owners/investors point of view the financial and social loss is a growing problem. From Dutch point of view modelling the office market has to be refined for price inelasticity of space demand, non-rational target yields, weak influence of construction market conditions and segmentation of the office stock.