Efficient Use of Space and New Inventory Propping Up U.S. Office Vacancies

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According to a new report this week by Cushman & Wakefield shows that while employment in the U.S. has finally fully recovered to where it was before the recession began in early 2008, the national vacancy rate is far above its 2008 level, as a combination of new construction and the drive to utilize space more efficiently has slowed the pace of decline.
 
Over the next two years job growth in the U.S. is expected to accelerate sharply along with the general economy. Of course, the pace of improvement will vary across metropolitan areas with some cities performing better than others. But with every job absorbing less space than in the past, it will still take a long time for office markets to fully recover. 
 
Cushman & Wakefield's Ken McCarthy tells World Property Channel, "The jobs recovery from the recession of 2007-2009 is complete, but the real estate recovery is not. The office vacancy rate in the U.S. today is well above what it was in late 2007,  the last time we had this many people employed."
 
"There are two important reasons for the slow improvement in the national office vacancy rate: new construction and greater efficiency in the use of space. As occupiers become more efficient in their use of space, job growth will have less impact on vacancy than it has in the past. Over the next two years we expect stronger growth in office-using employment to lead to a further decline in the national office vacancy rate. However, because of this efficiency factor, it is likely that the office vacancy rate in the U.S. at the end of 2015 will be higher than it was in 2007 even though there will be far more office using jobs than in 2007", concluded McCarthy.
 
Key highlights of Cushman &Wakefield's U.S. Office Market Report:
 

• With the exception of a few metropolitan areas, the recovery of office markets in the U.S. has been sluggish. Vacancy rates today are generally well above where they were when the recession began in 2008.

• As of the end of 2013, the U.S. economy has recovered all the office-using jobs lost in the recession, yet the vacancy rate today is far higher than it was in 2008.

• C&W estimates that about half of the reason for the higher vacancy rate is due to new construction, which has been largely confined to a few cities.

• The remainder of the rise in vacancy is likely a result of more efficient use of office space.

• C&W estimates that efforts to increase efficiency are having a major impact on how fast vacancy is declining. When vacancy rates are adjusted for construction, job growth in the current expansion is reducing vacancy at one-third the pace of the last recovery.

• The trend toward using space more efficiently is expected to continue leading to less absorption per job than in the past and creating new challenges for markets and building owners.
  

• Stronger employment growth during the next two years should lead to greater absorption and faster declines in vacancy rates than the U.S. has seen thus far in the recovery, but the declines are still likely to be slower than in past recoveries. In fact, by the end of 2015 the national vacancy rate is still likely to be higher than it was when the recession began despite the fact that there will be more than a million more people employed in office-using industries than there are today.