Thank you for sharing!

Your article was successfully shared with the contacts you provided.

MILWAUKEE-The overall impact of job losses on the office market might be less than anticipated, but some markets will surely suffer more than others, a new analysis says. The report from David AuBuchon, senior research analyst for Milwaukee-based Robert W. Baird & Co., says that some markets stand to lose more than others in the payroll cuts that the downturn is generating, which in turn has implications for building owners in those markets.

“We don’t believe the outlook for economic growth, and by extension office employment, is as bad as the capital markets currently anticipate,” the report says. However, it adds that “certain coastal, CBD, and financial-dominated markets have relatively more employment downside than suburban markets.”

AuBuchon points out that the financial roots of the economic slowdown have created an environment rife with mass layoffs and cost-cutting measures. This in turn means that office building owners in markets with heavy concentrations of financial services industries as tenants “have relatively more incremental risk in the near term” and more uncertainty regarding whether they cdan sustain the rent growth that they have become accustomed to in recent years, according to the report.

The Baird report assumes that the downturn began in late summer 2007, and it estimates that there could be anywhere from six to 12 months remaining in the down cycle. Although the report emphasizes the significance of office job losses, it also points out that office payrolls “are not an exact predictor of the office market” because other factors are in play as well, including vacancy levels, anticipated new space coming onto the market.

By Baird’s reckoning, the five least exposed office markets to the financial sector are Washington DC, Detroit, Los Angeles, San Diego and Seattle. “Washington DC is by far the leastexposed to the financial sector, with just 16.7% of its office jobs comprised of a financial nature,” the report says. It pegs Detroit as the second least exposed with 21.8% of its office jobs in the financial industry.

In addition, Washington is the second-largest office market in the country by square footage, which means that it is less likely to suffer from “the unemployment spillover that accompanies a financial sector-driven economic downturn,” the report says.

Although the report sees Los Angeles as less likely to suffer than some other markets, it notes that “Orange County represents asubstantial risk to office owners given its specific concentration of mortgage-related companies.”

While the New York market is most heavily exposed to the financial sector, it appears the employment trends have remained positive for the office sector as a whole, AuBuchon observes. “However, we would expect this trend to reverse as the weight of economic slowdown, and additional financial layoffs, bear down on the city’s economy,” his report adds.

Want to continue reading?
Become a Free ALM Digital Reader.

Once you are an ALM digital member, you’ll receive:

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 3 free articles* across the ALM subscription network every 30 days
  • Exclusive discounts on ALM events and publications

*May exclude premium content
Already have an account?

Dig Deeper


Join GlobeSt

Don't miss crucial news and insights you need to make informed commercial real estate decisions. Join GlobeSt.com now!

  • Free unlimited access to GlobeSt.com's trusted and independent team of experts who provide commercial real estate owners, investors, developers, brokers and finance professionals with comprehensive coverage, analysis and best practices necessary to innovate and build business.
  • Exclusive discounts on ALM and GlobeSt events.
  • Access to other award-winning ALM websites including ThinkAdvisor.com and Law.com.

Already have an account? Sign In Now
Join GlobeSt

Copyright © 2020 ALM Media Properties, LLC. All Rights Reserved.