In most parts of the globe, office property investors have favoured prime assets located in the central business districts of world-class cities. These are thought to attract the most prestigious corporate and government tenants, offer better access to public transportation, and be less susceptible to competition from new development. The major exception to this trend has been India, where an explosion of technology jobs being outsourced from more expensive countries has created demand for suburban accommodation with large floor plates, food service facilities and redundant power features not available in the crowded, historic central business districts
The Indian office market illustrates a trend that is sweeping the globe: the outsourcing of jobs from high-cost labor markets to low-cost areas. This is not a new trend; manufacturers have been outsourcing jobs to low-cost markets for decades simply to remain competitive. What is new, however, is that a growing number of service jobs are being outsourced, jobs usually located in office buildings. In the US, global outsourcing is likely to reduce net office absorption by 25 percent over the next 15 years. This draining of service jobs is being repeated in Western Europe, especially in the UK.
Two other global trends suggest that occupier demand for office space may be muted in the coming decade. Major corporate occupiers are cutting their real estate costs in any way possible, including hoteling, greater use of technology and simply holding down headcounts. The lowering of trade barriers and greater mobility of capital has created an unprecedented level of competition among global corporations, locking them into a perpetual cycle of cost cutting.
They must manage their real estate requirements more efficiently to extract maximum utility at minimum cost, and are being assisted by a new breed of professional real estate service providers. Property valuation structure This trend, which will intensify over the coming decade, is likely to cap the take-up of office space. The third trend that may hold down occupier demand for office space is the aging of the baby boom generation. As workers in their fifties and sixties retire, there are simply fewer workers coming up behind them to fill those positions. In some areas of the globe, this may result in a shortage of labour. While this is beneficial for workers, it is not so beneficial for office demand.
Reduced demand and a longer recovery cycle are not the only issues facing office landlords. Property insurance costs have risen dramatically across the globe in the wake of 9/11, particularly for high-profile properties in major business centres. Property taxes are rising in many parts of the globe as governments cope with tax revenues depressed by three years of little or no growth. And the cost and availability of energy has become an issue, particularly in North America where an aging grid system triggered a blackout along the US East Coast, Midwest and several Canadian provinces.