Will the Momentum Continue?
Most of the forecasts, I am seeing for the Office Market in 2013 are projecting continued improvement in market fundamentals for the coming year. Much like this year, technology and energy centric markets are expected to be the star performers. Houston and Dallas are considered energy markets and Austin is more tech related. While, I don’t disagree that the Texas office market will continue to improve, I am not so bullish about the strength of the recovery in the first half of 2013, and expect it to be considerably slower, in fact lackluster in comparison to what was experienced in 2012.
The performance of the office market is closely tied to job growth particularly in the service sector and all signs point to slower job growth as their seems to be even more uncertainty regarding the economy and the federal governments economic policies. Commercial real estate tends to be an optimistic bunch and I typically fall into that category. I hope I am wrong, but I think many are going to be disappointed in 2013 in regards to the depth of the office market recovery. I believe many corporate users have already pulled the trigger on their corporate real estate plans and without significant job growth, absorption will be anemic. I don’t expect rents to decline but expect some stagnation in rent growth. The message is that their is still time to lock down rental rates before another rent spike occurs.
The Federal Reserve Bank of Dallas released their Texas Service Sector Outlook Survey for November which reports that Texas Service Sector activity continues to expand but at a slower pace. I expect that pace to continue to slow at least for the first two quarters of 2013.
Texas Service Sector Outlook Survey
Texas service sector activity expanded in November, according to business executives responding to the Texas Service Sector Outlook Survey. The revenue index, a key measure of state service sector conditions, dipped from 13.5 to 11.1, suggesting slightly slower growth.
Labor market indicators reflected some employment growth, but no change in workweeks. The employment index edged up from 7.5 to 8.2, and the hours worked index was 0.7, suggesting little change in workweek length.
Perceptions of broader economic conditions were slightly less optimistic in November. The general business activity index edged down from 9.3 to 7.1. Similarly, the company outlook index fell slightly from 7.2 to 5.8, with 22 percent of respondents reporting that their outlook improved from last month and 16 percent noting they worsened.
Price pressures eased and wage growth slowed in November. The selling prices index fell from 8.3 to 6. The wages and benefits index moved down from 14.5 to 10.1.
Respondents were markedly less optimistic about expectations regarding future business conditions than last month. The index of future general business activity moved down 6 points to 6.9, and the index of future company outlook fell sharply to 1.4, its lowest reading since August 2011. Indexes of future service sector activity, such as future revenue and employment, fell in November but remained in solid positive territory.