Office Employment Growth Prospectsby Petros Sivitanides, Ph.D.
Office employment (that is employment in sectors of the economy that use office space, such as professional and business services) growth is the major driver of increases in demand for office space. The long-term trend of increases in service employment, which has fueled increases in demand for office space in the past, is likely to continue in the future, but at a slower pace compared to the past, as indicated by projections of employment in major service sectors, prepared by the Bureau of Labor Statistics for the period 2004-2014. These projections, as well as historical statistics, for the period 1990-2004 are presented in Table 6.
As Table 6 indicates, the Bureau of Labor Statistics (BLS) predicted that employment in major office using sectors would continue to rise over the period 2004-2014, but at rates lower than the ones registered in the previous ten years (1994-2004). Professional and business services are expected to grow considerably faster than other major service employment sectors. In particular, employment in professional and business services is expected to grow at an average annual rate of 2.5%, while employment in financial activities, information services, and other services, as well as state and local government employment, is expected to grow at rates ranging from 1.0% to 1.1%. All in all, BLS predicted that, between 2004 and 2014, professional and business services will add about 4.6 million new jobs, while state and local government employment will grow by 2.1 million jobs. Financial and other services are expected to add about 1.5 million new jobs over the same period. The challenge for real estate investors pursuing high returns is to identify which metropolitan markets are about to register the strongest office employment growth and then identify office clusters that are bound to benefit the most (in terms of rent and value gains) from such increases. Econometric forecasts of office employment growth, new supply estimates, and vacancy rate projections are necessary inputs for identifying the markets with the best prospects for strong office rent and value gains. 1This is an excerpt from the book Profitable Real Estate Investing: A Value Growth Approach by Petros S. Sivitanides, Ph.D.
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