In the complex interplay of segmented office markets and short- and long-term developments, a drama is taking place at an intermediate time scale: office buildings are becoming obsolete before their time. Since the mid-1980s, the problems arising from premature obsolescence, diminishing returns, higher costs, and increasing vacancies have drawn attention in the Netherlands. Premature obsolescence is the result of developments on the demand and supply side of the office market but also of the changing structure of cities. This study revolves around the owners' experiences with the obsolescence of their office buildings in Amsterdam and Rotterdam and the strategies they use to cope with the problems associated with obsolescence.
The owners of obsolete office buildings have a whole range of strategies to choose from, which may be grouped under two headings: property development (refurbishment and redevelopment, intended for either re-use as offices or as accommodation for other functions); and other forms of management (entailing little or no upgrading, intended for either maintenance or sale). The conditions for investment in renewal were not favourable during a large part of the research period. Yet for the majority of owners, the alternative strategies – extension of lease without refurbishment, sale, change of function – were even less attractive.
The financial constraints played a key role in the decision-making. The limited financial scope for investment in renewal was not only the result of the realistic market rents for office space and for other uses; it was also a result of the financial obstacles introduced by the long-term owners themselves. This behaviour may be traced back to the use of old-fashioned methods of bookkeeping and valuation.
Over the past few years, real growth in rents has created more financial leeway for that kind of investment. In the same period the owners who are active on the real estate investment market have become more professional. External benchmarks have forced them to act with greater transparency, show more market-responsiveness, and be more realistic in their bookkeeping. Thus, one may expect to see fewer constraints on investment in or sale of obsolete office buildings. A more 'normal' market of obsolete buildings will come into play, whereby possibilities and challenges will arise for different kinds of actors.
The economic obsolescence of office premises will be a manageable problem for owners only if the locational obsolescence of the sites can be prevented. These locational problems cannot be solved by the owners of the premises alone. A regionally co-ordinated policy of local governments will be needed to upgrade the quality and capacity of existing office locations before releasing an ample supply of greenfields for office development. As long as existing office locations retain their appeal to office firms, the rent level can be kept up through a 'locational premium' effect. This creates additional financial possibilities for investment in renewal of the buildings.