North American Office Market Indicators
The recovery in the primary office-using sectors (professional and business services, financial activities, and information services) gained steam in 2013, outpacing total employment growth. The U.S. added approximately 745,000 office-using jobs during the year, with a 2.6 percent year-over-year growth rate in December 2013, compared with a 1.7 percent increase in overall employment growth during the same period. The absolute gain in office-using jobs was the highest since 2005, when 789,000 office-using jobs were added.
Moreover, office-using employment reached a significant milestone in Q4 2013: the number of office-using jobs has surpassed the pre-recession peak of July 2007. As of December 2013, the primary office-using employment sectors had recovered 102 percent of jobs lost during the recession; by comparison, about 88 percent of all jobs lost during the recession had been recovered as of December. The growth in office-using employment is primarily attributable to the professional and business services sector, which has added nearly 2.4 million jobs since its cyclical bottom in 2009. The Intellectual Capital, Energy and Education (or “ICEE”) industries have been driving growth, but slower-to-recover sectors such as legal services and architectural firms have added to payrolls during the last few years, indicative of broader economic and office market recoveries. This bodes well for job creation and office demand during 2014, with more industries and geographies benefitting from the economic expansion.
USA Trends: Most MSAs Adding Office-Using Jobs
The current recovery in office-using employment is widespread. In December 2013 (the most recent data available), all but 13 of the 75 U.S. markets tracked by Colliers added jobs in the primary office-using sectors on a year-over-year basis. Also, office-using employment exceeded the pre-recession peak in 31 of the 75 U.S. markets tracked by Colliers.
The fastest annual growth in December occurred primarily in Sunbelt markets, although several smaller Midwestern markets—Madison, WI, and Grand Rapids, MI—also ranked near the top. Many of the markets hit hardest by the recession are rebounding at a rapid rate, including Vallejo, Orlando, Tampa and Phoenix. The list of metros that have regained the highest percentage of jobs lost during the recession is dominated by ICEE markets, including Pittsburgh, Raleigh-Durham, San Jose/Silicon Valley, San Francisco/Oakland, Dallas-Fort Worth, Houston and Midland, TX. With its low cost of doing business and fast-growing health care sector, the Nashville market is also thriving.
A few highlights from the North American Office Outlook report:
- In Q4 2013, employment in the primary office-using sectors in the U.S. surpassed the pre-recession peak set in July 2007. Canada’s private sector continues to drive job growth and office demand.
- The North American office vacancy rate decreased by 12 basis points to 13.56% in Q4 2013. The U.S. vacancy rate dropped below 14% for the first time since Q3 2008. The North American vacancy rate will likely continue to drop at a modest rate due to more efficient usage of space by tenants. The Canadian vacancy rate will likely increase slightly but remain low, with some tenants vacating older Class A and B buildings for newly completed space.
- 70 of the 87 markets tracked by Colliers posted positive absorption in 2013. Dallas led by a wide margin, followed by Houston, Central New Jersey, Boston and Atlanta. Absorption in the main intellectual capital, education and energy (ICEE) markets totaled nearly 20 million square feet, compared with 11.4 mil. sq. ft. in the main finance, insurance and real estate (FIRE) markets, although many FIRE markets, including Midtown Manhattan, Chicago, Charlotte and Miami, posted significant positive absorption during the year.
- Construction activity increased slightly in 2013, but speculative construction remains concentrated in the strongest markets and submarkets. Houston alone accounts for about 12% of construction under way in the 87 markets tracked by Colliers, followed by Toronto, Calgary, Downtown Manhattan, Washington, DC and Midtown South Manhattan.
- Office transaction volume totaled nearly $107 billion in 2013, the highest annual total since 2007. Given the shortage of available assets and/or rich pricing in gateway markets, as well as the broadening economic recovery, investor demand is spreading to secondary and tertiary markets that were out of favor earlier in the cycle. Transaction volume is poised to increase further in 2014 given improving fundamentals and the large amount of capital targeting real estate, including foreign sources.
You can download and view the full report here.