Don't count office out yet. While the office sector has clearly struggled through the pandemic, office-using employment recovery indicates future demand for physical workspaces.
In the third quarter, office-using employment rebounded quickly. According to data from Newmark, more than 30% of private sector office-using jobs lost in second quarter were recovered by the end of the third quarter. The 15 largest office markets in the country—many of which have been the hardest hit by the pandemic-driven downturn—have seen the strongest recovery in office-using jobs. Typically, the recapture of lost jobs is much slower during a recession, making the speed of this recovery all the more reassuring for both office and multifamily landlords.
Professional and business services drove the recovery of office-using employment during the third quarter, accounting for the largest number of recovered jobs. The Seattle and Dallas markets regained 94.1% and 71.8% of jobs in this sector, respectively. The financial activities sector had the fastest recovery with several markets, including Dallas, Seattle and Riverside regaining more jobs than were lost in the second quarter, according to the research from Newmark.
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Other office-using sectors have yet to experience the same level of recovery. The information sector specifically has not experienced strong job growth in most markets. New York City, Los Angeles and Seattle did see some recovery of lost information sector jobs, but not more than 25%. The additional top seven US information markets continued to lose jobs through the third quarter. These companies have also embraced remote work policies, which could hamper future office demand in this sector.
Still, the third quarter jobs gains have been encouraging, considering the rapid loss of jobs in the second quarter. More than 20 million non-farm jobs were lost at the beginning of the pandemic, and 3.1 million of those jobs were from private sector office-using companies.
The recovery has been promising news for investment capital. NCREIF is now predicting improved office return rates in all top markets, although in many cases the boost isn't enough to push returns into the positive. Seattle and Boston did show positive office return rates; however, most markets continued to show negative return rates. Although rates have yet to bounce back, Newmark notes that office-using employment numbers have historically been a major factor in determining office returns, and the recent rebound in these numbers is a positive sign for the office market.
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Kelsi Maree Borland
