Office Development

A Geographical Analysis

Michael Bateman

• Publisher: Routledge
• Year: 2021
• Print ISBN: 9781032005478
• eBook ISBN: 9781000389807
• Topic: Physical Sciences
• Subtopic: Geography
• Index: Geography

Originally published in 1985, this book examines the impact financial institutions have on the location of investment of vast resources, including office development. An analysis of their behaviour is crucial to an understanding of the 20th Century urban development process. This book documents some of the international activity of property investment. Some cities in the UK, USA and France are examined in detail to demonstrate the huge physical impact of this development process. The constraints on office development are also discussed. A recurring theme is the power of the supply side of the development industry in comparison with the relatively weak position of the office end-user.

Chapter One

OFFICE DEVELOPMENT - SOME INITIAL CONSIDERATIONS

DOI: 10.4324/9781003174622-1

During the twentieth century, cities within western society have been characterised successively by the initial growth of office buildings, by their increasing functional and physical importance and by their dominant physical presence which has resulted in a transformation of many parts of the city, notably its central area. Many major cities, particularly those of North America are now recognisable by their skylines, composed largely of multi-storey office buildings. In Europe, skylines of public buildings have often been superseded by tower blocks of offices, rising up to overshadow towers and turrets of earlier centuries. Only occasionally have public authorities had the foresight to protect cities from a dramatic re-shaping and even then, measures have often been implemented rather belatedly. A process has been operating on cities throughout the developed capitalist world, encompassing Western Europe, North America, Hong Kong and Singapore, together with cities in the southern hemisphere including those of Australasia. The office resulting from this process not only exert a physical dominance, they are also testimony to the increasing importance of office employment as a proportion of total urban employment. It is by no means unusual to find that white collar, or office, jobs account for over fifty percent of total employment in many major cities. Yet, despite the physical and functional importance of the office, with only a few notable exceptions, geographers have paid little attention to the phenomenon of office growth and development.

New construction in city centres almost always involves at least an element of office development and a city’s growth is invariably accompanied by the expansion of its office sector. At the same time, this development activity provides a channel for investment funds from a wide variety of sources, including major institutional investors such as insurance companies and pension funds. Indeed most people in our society might claim an indirect ownership of modern air-conditioned office floor space, although its location may come as a surprise to many, since investment is geographically extremely widespread. Investment in property is not made evenly across the urban system in either a spatial or a temporal sense. It is highly sporadic, favouring certain locations, at the expense of others, whilst it is also subject to a complex system of cycles of investment activity, linked to more general economic cycles. The resultant pattern of new office development is very uneven, with some cities suffering from a surfeit of new development, leaving others in which the stimulus of new office development would be welcomed by local politicians and planners alike, but which do not find favour with either investors or office users. A consideration of the emergent spatial distribution of office activity and of the factors which determine it, is long overdue and it is this which forms the central purpose of this book.

Certain fundamental questions need to be asked and attempts made to answer them. Amongst these, we may ask what mechanism determines that office development is actually set in motion. Leading on from this, what degree of control is exerted on the development process and how effective are the measures of control? How has office development affected urban areas, particularly those city centres which have been the focus of the most intense development activity? Within national urban systems, what has been the character of the geographical variation in the patterns of development? This question is part of a broader one which asks how it is decided that funds for office development are channeled into one particular urban system, given that the choice available may include not only cities within one country, but also numerous overseas locations. Finally, it is pertinent to ask how far new communications and information technologies are likely to affect the office development process. Once an attempt has been made to answer each of these questions, it becomes possible to suggest certain policy guidelines within which office development might reasonably be expected to operate.

GEOGRAPHICAL ANALYSIS OF THE OFFICE DEVELOPMENT PROCESS

In a general sense, studies of the office as an urban function came rather late, at least compared to those of other major urban employment functions, such as manufacturing, or retailing. Cowan (1967) offered an early analysis of the office as a major component of urban growth, but it was not until 1975 that Daniels produced the first major published analysis of the location of offices (Daniels, 1975). Goddard and Alexander have each analysed office location within a regional policy framework (Goddard 1975, Alexander 1979). Each of these reflected the growing awareness of the importance of the office in both an urban and a regional context, with Alexander adding a valuable international comparative dimension to the analysis. Nonetheless, despite these discussions of office location and development, from the point of view of a geographical anslysis, the intricacies behind the process of office development lay largely unexplored. One factor which goes some way to explaining this is that office development must be seen as the product of a development industry tied closely to the operation of western capitalist financial systems, parts of which are somewhat labrythine. Ambrose and Colenutt certainly made one very valuable attempt in their analysis of the so-called “Property Machine”, in which some of the operations and requirements of those involved in office development are considered, although this discussion was confined to the intricacies of the British property industry and its domestic activities (Ambrose and Colenutt, 1975).

An understanding of current office development requires the development of a broader ‘geography of finance’, to include the operation of international money markets and international migration of investment funds. Dicken and Lloyd have already been amongst those who have emphasised the increasingly international dimension and interdependence of economic activity, and Taylor and Thrift’s geographical analysis of multi-national companies further underlines the necessity to adopt an international view. (Dicken and Lloyd 1981, Taylor and Thrift, 1982). Certainly international variations in rates of exchange, interest rates for borrowers and interest returns for investors are now vital explanatory components in an understanding of international variations in economic activity.

The scale of operation of western capitalist organisations is such that only a consideration of their activities on a global scale and in the context of the world’s financial system will yield satisfactory explanations for the results of their capital investments. Dicken and Lloyd go on to emphasise the role of major organisations, both public and private in shaping western society and environment (Dicken and Lloyd 1981). They point to the lack of geographical study of the finance sector, made all the more wanting since “a relatively small number of very powerful financial institutions act as gatekeepers in the flow of financial capital in industrial society.” (Dicken and Lloyd 1981, p.65). Certainly there can be no satisfactory examination of the geography of property development, and particularly of office development without a detailed appraisal of, and familiarity with the workings of the financial institutions involved. It would be simplistic indeed to offer an explanation for office development in classical bid-rent theory terms, since utility maximisation by an occupier may be a secondary consideration for development to profit maximisation for the financial institutions. Although some would argue that the two may be equated, the notion of speculative property development by definition suggests a system where building activity is determined primarily by the supplier of property rather than by the eventual user. The major financial institutions play a crucial role in this process.

More generally the ownership of capital and variations in its availability are important to our explanation of geographical patterns of economic activity as is clearly demonstrated by Massey and Catalano’s analysis of capital control and land ownership in Great Britain. (Massey and Catalano, 1978). Without such an analysis, an explanation of land use distribution and land use change is rendered at best imperfect and at worst, virtually meaningless. Yet an understanding of the urban development process is equally dependent on an explanation of the processes of property development, to include the flow of investment capital within the urban system and increasingly between the urban systems of different states.

It is clear that in the Middle Ages, cities developed in response to a given need, perhaps for trade, possibly for administration or some other major urban function, and in the Industrial Revolution, new buildings as well as entire towns were created to house new industrial processes. It is by no means clear today, however, that such a clear cut relationship exists, at least not in the short term. Speculative building for commercial functions, particularly for offices and retailing is now almost the norm, as well as being increasingly common for other functions such as industry and warehousing. It could be argued that historically, speculative urban development was confined to residential buildings and even then its history was relatively short, dating in the UK back to industrial housing of the nineteenth century. In the area of office building, however, there are a growing number of demands which bring about the process of development which are not directly linked to the needs and wants of the final user. Instead it has become a vehicle for large-scale investment of finance, some of which has been willing to accept long rather than short term returns. Indeed the property development industry is highly dependent on and compliant to the requirements of major financial investors. On occasions, the needs of user and developer will be immediately coincident in both time and space. Often, however, this is not the case and offices may be vacant for a considerable period of time. It is also quite conceivable that office activities, which are after all quite mobile, may move towards areas of available office space, in which case it is fair to claim as suggested above that it is the office development process as seen from the supply side which has shaped the urban system, rather than the demand from office users. It is a basic thesis of this book that the office development industry - part of Ambrose and Colenutt’s “Property Machine” - which has been at least instrumental in transforming cities and in some cases has been the major guiding force.

DEVELOPMENT CYCLES AND OFFICE DEVELOPMENT

Development cycles in the urban system have been recognised for many years. Conzen’s ‘burgage cycles’ are an early example of the recognition that urban form is the result of a continuous, but not necessarily smooth process of development. (Conzen 1960). The analysis of building cycles by Lewis, similarly recognised their importance in explaining the development process in a more general sense (Lewis 1965). Yet recent attention has focused on the more precise analysis of the relationship between temporal and spatial processes. Parkes and Thrift (1980), for instance, in acknowledging the importance of cycles of activity examine the alternative cycles which may be cited to explain variations in economic activity. The long term cycles of Kondratieff, covering very broad innovation periods have been briefly reconsidered by Hall (Kondratieff 1970, Hall 1981). It is difficult to discern the effects of such cycles in anything other than the broadest terms within the urban system. Yet shorter term economic cycles may indeed be readily identifiable in terms both of their general impact (see for instance Sant 1973) and of their more specific impact on urban form. (See Whitehand 1983, pp.51–53).

In the context of office activity, economic cycles have very obvious effects. The demand for offices is determined by the state of the business cycle. If it is in an upward stage then offices are in demand and are occupied, whereas on its decline, the reverse is true. By its very nature, however, the office development process is susceptible to such cycles of economic activity since it is incapable of short term adjustments to changes both in supply and demand. In terms of supply, office development projects may well take several years to come to fruition, during which time, rates of return on capital invested may change since rents may decline. Similarly if an office is planned and financed during the upward trend of the business cycle, but not finished until after the peak has been reached, then on completion there may be no tenant wishing to occupy the building. In either event, the expectation of rent income on which the building was financed will be unfulfilled. Should this happen, it is not uncommon for the developer of the building to keep a building vacant awaiting an upturn in the general economic cycle and hence a higher rent than may be obtained by letting it on a declining market.

Barras in his analysis of post-war development cycles in London suggests that the cycles themselves may be the product of the system of office development (Barras 1979 and 1984). Since there is a three or four year delay, he argues, between start and completion of a major scheme, development lags behind any changes in market conditions. An increase in demand causes rents to rise and a general shortage, leading to enhanced values and encouragement to developers to launch more schemes. Once the first wave of schemes is complete however, shortages diminish, land values and rents level out, but some schemes are still left in the pipeline. Speculative development then ceases until the offices stemming from the last phase of the cycle are occupied. Certainly, it is not difficult to see the effect of such cycles in terms of oversupply following early stimulus. Paris in the mid-1970s was a spectacular example with over one million square metres of empty space, resulting from an over-stimulation of the local market at the end of the 1960s and in the early 1970s, coupled with a more general fall in demand, brought about by the post-1973 oil crisis induced recession.

In the case of London, the economic growth of post-war Britain sustained demand until the mid-1960s, when there was an oversupply. As Barras points out, since that time, the business cycles and development cycles have been out of phase since short-lived economic or business cycles have meant that offices generated on the upturn have been completed only after the peak of the cycle. This situation was especially well-illustrated in the mid-1970s when sudden economic collapse caused a major oversupply of space, It also set off a decline in property values so severe that it caused a major re-shaping of the property development industry as companies’ book of assets of property fell dramatically, resulting in some spectacular bankruptcies of property companies which had financed new development on the basis of loans secured by property which had fallen dramatically in value.

The international dimension of the property development industry assumes considerable importance in the context of these cycles of development. Whilst it is true that there are world-wide economic cycles, fuelling or depressing demand for office space in a general sense, there are also spatial variations which can be seen in terms of the operation of these cycles. The case of Houston is a good one with its development cycle boosted because of its links with the energy industry in 1973 and after. A general re-appraisal of the desirability of dependance on distant resources and a domestic development of the energy industry resulted in considerable development for Houston as an office centre. The City saw frantic activity in its office sector during the 1970s so that by the beginning of the 1980s, Houston had much enlarged office stock. In 1981, 1.05 million square metres of new offices were let, a level 250% above its closest rival, Los Angeles.. (Estate Times Review, January 1982).

In contrast, Paris and Brussels, two cities which will be discussed further in later chapters, both saw increasing vacancy rates during the same period, since demand for offices declined in the face of economic recession. By the 1980s, Houston was suffering from an oversupply of offices and was entering the downturn of its development cycle. This brief example illustrates that it is unreal to talk of only one development cycle. Instead, each national urban system has its own cycle, determined by such factors as national economic performance, and rates of international currency exchange. Moreover, even within one national urban system, there may exist simultaneously several development cycles, each affecting different cities. The USA provides an example of this as will be seen when the North American office market is further discussed in Chapter Seven.

Such temporal variations in development activity assume a special significance in the context of the office development process since much of the capital involved is highly mobile. In the case of British capital, the lifting ...

Table of contents

• Cover Page
• Half Title Page
• Title Page
• Copyright Page
• Original Title Page
• Original Copyright Page
• Contents Page
• List of Tables Page
• List of Figures Page
• Dedication Page
• Preface Page
• 1. Office Development - Some Initial Considerations
• 2. The Property Market
• 3. Control of the Office Development Process
• 4. Physical Impact of the Development Process
• 5. Office Development Patterns and Problems in the UK
• 6. France - A Controlled Market
• 7. North American Office Development
• 8. Office Development and Technological Change
• 9. Policy Implications
• Bibliography
• Index