Oct 26 2006 7:58AM | Permalink | Email this | Comments (0) |
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Rapidly rising employment in the two key office based industries has progressively absorbed enough empty cubes and empty building to convince developers to risk adding more space in spite of a 16% national vacancy rate and rental rates still well below the peak rates at the end of the last building cycle.

Reed Construction Data expects the value of private office starts to jump 18% this year, 27% next year and 10% more in 2008. Similarly, the annual gain in office construction spending (public & private and both new and remodeling) will rise from 12% in 2006 to 15% in 2007 and to 19% in 2008 with further strong gains beyond 2008. Private offices will be the fastest growing construction market in 2008.

The financial services and professional and business services industries are aggressively adding jobs at a 2.5% annual rate, more than twice as fast as the rest of the economy. Together, they hired 2.1 million people and account for 40% of the new jobs in the economy in the last four years. The two industries hired 50,000 people a month over the past year.

New office construction has been heavily concentrated in a few cities in the last few years, especially Washington and the Riverside area of greater Los Angeles but will become more widespread in the next two years. Property & Portfolio Research, our commercial construction partner, expects significantly higher new office construction in the next few years in many major metro areas, especially Atlanta, Chicago, Los Angeles (downtown and Orange County), Sacramento, Houston, San Francisco Bay and Tampa.

However, note that the expansion of office based industries is at little more than half of the overheated pace in the late 1990s. That was when the network and interactive Internet software industries matured, the YK2 software bug scare spurred hiring and the rapid adoption of 401(k) pension plans caused a huge surge in back office financial services hiring. None of these job drivers are as strong now. So office employment growth and, hence, office construction will be modest compared the boom in the late 1990s.