FIRE Sector Weak in Most Markets, But Not Everywhere
The housing market correction and financial crisis took a deep toll on finance-related employment and office markets around the U.S. Yet the number of of bank failures in this recession was a fraction of what we experienced during the Savings and Loan Crisis. One major cause of the decrease in finance industry employment was not bank failures, but rather a new banking regulatory environment. A more strict and uncertain regulatory environment has caused some financial and insurance companies that are heavily engaged in real estate finance to exit the business. Because of these factors, financial activities employment nationally has recovered only about one-third of jobs lost during the recession. However, a handful of metropolitan areas not only are ahead of this pace, but already have exceeded their respective pre-recession peak levels.
Note: Based on markets with total employment of 500,000 or more; seasonally adjusted data. Sources: Federal Reserve Bank of St. Louis, Colliers International
Additionally, financial activities employment in several other large markets, including Houston, Kansas City, Minneapolis-St. Paul and Phoenix, is at or near pre-recession peak levels. Common threads connect many of the markets leading the recovery in the financial services industry:
Lack of a significant housing bubble: Most of these markets did not have a major housing bubble and ensuing correction, and home prices in several, including Dallas, Austin and Pittsburgh, are above their previous cyclical peaks. On the flipside, financial activities employment remains 15%-30% below previous peaks in many former housing bubble markets.
Geographical concentration in the Midwest and Sunbelt: Low costs of doing business and living continue to attract companies and residents to these areas. The absence of higher-cost Western and Northeastern markets from this list is notable.
Impact of the energy boom: Dallas-Fort Worth, Pittsburgh, San Antonio and Houston have been among the prime beneficiaries of recent innovations in drilling and extraction driving rapid growth in domestic energy production. Smaller energy-driven metro areas, such as Midland, TX, and Odessa, TX, also have experienced surges in financial activities employment.
Although we expect the financial activities sector to continue recovering at a slow rate nationally, the rebound clearly is not geographically uniform. Financial activities hiring will continue in these leading markets, as well as others in the Sunbelt and Midwest regions, driving office market absorption.