Markets See Job Growth, Absorption Discrepancy

"We are seeing it in markets such as Washington, Chicago, New York and Los Angeles, but not so much in the Sunbelt markets such as Houston," Gregory H. Leisch, CEO of Delta Associates, tells GlobeSt.com. However, he adds, the discrepancy between the two metrics--which usually rise in tandem--is most pronounced in the DC market.

It finds that office demand has been light relative to job growth this year. "Since job growth typically translates into need for office space, the light demand experienced to date in 2006 has questions about the factors contributing to this apparent disconnect," the report says.

During January to September 2006, 4.5 million sf was absorbed, while the local economy forecasted to create 65,500 new jobs in 2006--which should translate into a need of 7.2 million sf of office space for the year. Therefore, roughly 2.7 million sf needs to be absorbed during the fourth quarter of 2006, Delta Associates concludes.

Leisch has his theories about these trends, although he is quick to add he can't prove it. "It had to do with the industries that dominate these markets, such as finance, consulting and services--which tend to automate and store records electronically and thus are able to use office space more efficiently." At the same time, the higher cost of occupancy in the DC area is a factor as well. "The more expensive the rent, the more a company pays attention to use space engineering to use less," he says.