Making Sense of the Office Market
Yesterday as I read this headline from Bloomberg: “Financial Demand for Office Space Is Steady Amid Job Cuts, Landlords Say.” I couldn’t help but think about the fact I have not seen anything written recently about “Shadow Office Vacancy”. Rewind back to last year and you will remember there was quite a bit of speculation even predictions about how it would impact the pace of recovery for the U.S. office market. I posted my thoughts on the subject earlier this year and my basic premise was that speculating on the volume of shadow office vacancy was one huge guess. I tended to believe it was generally overstated but certainly made a juicy headline. I don’t know whether I was right or wrong because there was no reliable method for measuring the volume of shadow office vacancy at any give period to begin with. However, given the anemic rate of job growth experienced so far in 2011 you might come to the conclusion that it was either (1) over estimated or (2) that the bulk of job growth has come in office using employment.
The Uneven Recovery
We know that any improvement to office market fundamentals has been uneven across specific markets with the so called “gateway cities” faring better than others and there has been a relatively low volume of new office space construction. However, given that some believe that workspace allocations per employee are being drastically reduced, and you combine that premise with the velocity of recent job growth as well as a huge inventory of shadow office vacancy, then you would wonder how there has been any net new office demand at all? Somehow it all just doesn’t add up.
Somebody has to be Wrong
Since measuring job growth and new office space construction is relatively accurate, I can only come to the conclusion that;
- Shadow office inventory was not as significant as many believed it to be, or;
- Office workspace allocations are not being reduced as dramatically as some would speculate, or;
- Some combination of the two above
Which do you think it is?