New job growth fell dramatically in May and there were significant layoffs in the computer sector which were affected by Hewlett Packard laying off 27,000 employees. During the recession, we lost 6.8% of our jobs and we are still down approximately 3.8% from pre-recession levels. The graphs below paint a picture of where we are today.
During the recession, companies have used lean engineering to become more efficient. Most corporate entities have demonstrated an ability to do more with less. This is evidenced by corporate profits and cash on hand in the corporate coffers. While major corporations are performing well and making money, why are we not seeing job growth? Most economists are of the opinion that there is still a great deal of uncertainty in the economy related to the regulatory environment, elections and debt crisis in Europe. These forces have created a head wind that has prevented many employers from expanding, or making capital investment. The net result is decision paralysis on hiring new employees. Most office markets are also impacted by aging stock, surplus of inventory and significant shadow space with the exception of San Francisco, New York, Austin and a few other markets.
Recently, I had the opportunity to hear Richard Rosen, President of the Urban Land Institute Foundation, speak at a Nashville event. He made the comment that office space may become the dinosaur of the future. He contended that continued slow job growth would mitigate demand for new buildings. The corporate drive for increased efficiency would lead a trend towards higher density, growth of the home office and shared plug and play office space. He went on to say that the E Commerce and technology sector was demanding non-traditional spaces. These technology companies want non-traditional, loft type buildings that complement the creative environment demanded by this growing sector.
Parking ratios are ever increasing for today’s office tenants. It is not uncommon for tenants to require a ratio as high as 6 to 8-per-1,000 square feet of space, as compared to the 4 to 5 spaces per 1,000 that most of the existing building stock was constructed to accommodate.
Landlords and developers will be forced to find ways to accommodate the increased demand for parking. They will be required to construct garages or rent off site spaces. The demand for non-traditional office space will force landlords to create trendy spaces within their buildings or look for opportunities to convert properties to meet
the demands of this segment. Creative rehabilitation of loft warehouse space can be an opportunity for developers to add value by offering users trendy space at a competitive rate.
As the economy continues to walk through the mud of slow growth, it will be interesting to see if the aforementioned issues become the new norm or if they are merely a market cycle anomaly.