Is there an office replacement cycle?

Whether office replacement cycles are likely to emerge in the future given the bunched nature of office building arising from past building booms is examined. This issue is important because replacement could be a significant supply-side cause of the well- observed office building cycle. Furthermore, the literature on equipment investment has recognized the possibility of cyclical replacement behaviour. Built structures, however, have some distinction characteristics, especially longevity, that might negate the causal processes suggested for equipment. Three approaches are adopted. The first is to see whether time series data on holdings of UK office buildings by investors provide any evidence of a cyclical decline in building ages. It was found that, although declines are marked over time, they showed little evidence of a systematic cyclical pattern in relation to age. The second approach provides estimates of the outstanding UK stock of commercial buildings over time, using the perpetual inventory capital stock estimation method. This analysis shows that the scale of new building over recent cycles has been far greater than any apparent need for replacement buildings - so that, at best, replacement cycles can only be of second-order influence on the pattern of observed cycles. Thirdly, a series of theoretical arguments are put forward to suggest that redevelopment of a particular age cohort of buildings is, in any case, likely to be spread over a long period of time.