Office Space Demand: Parsing the Jobs Reports

August 16, 2011

Corporate America is in Great Shape but Not Hiring

Despite ten (10) consecutive months of job growth in the United States there is no reason to believe that the United States Office Market will improve significantly if at all in the second half of 2011. Given recent economic news the hopes for a more robust economic recovery for the remainder of the year are fading. The bottom line is that corporations despite sitting on a record volume of cash are reluctant to pick up the pace of hiring which will keep office space demand restrained.

Nonfarm Payroll Employment July 09-July 11 (SA)

The Challenger job cuts report earlier this month told us that private companies are planning more cuts in Q3 and Q4. Big tech companies like Cisco, are already announcing their plans to reduce global staff. The Challenger report is your leading indicator as to what to anticipate in unemployment 6 months out.

The ADP jobs report told us that private companies are doing all they can to eke-out 100,000 jobs per month. GDP estimates for the second half of 2011 of 2% plus seem overly optimistic when you consider the Challenger and ADP data.

The BLS  jobs report for July that characterized “not as bad as feared” is somewhat misrepresenting the true employment report in the United States. Approximately 13.9 million persons are officially unemployed, but another 2.8 million are considered “unofficially unemployed or “marginally attached. The U-6 total employment rate exceeds 16%.

If Not Now When?

Demand for office space typically lags the labor market by 2 to 3 months and without significant job growth projected until at least 2012, we could be looking at Mid-2012 for substantial improvement to office market fundamentals are realized. To date recovery in the office market has been uneven with some cities significantly outperforming others. Texas cities such as Dallas, Austin and Houston have been strong performers in job growth relative to other U.S. metropolitan areas, but the needle hasn’t moved much in terms of net office space absorption and increased occupancy rates.

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