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Leasing and rent growth in the office market just hasn’t happened during this recovery, despite higher office employment. To understand why, let’s check out where the job growth is coming from.
The tech sector has largely driven growth, and tech workers need less floor space—but that only explains part of the lack of leasing.
The highest job growth compared to last recovery (22% compared to 17%) comes from temp workers, for whom companies aren’t exactly expanding their digs.
Banking and securities firms—whose offices tend to be packed with extra space like libraries, conference rooms—have only put up 2% of the job growth in this recovery, compared to 7% in the 2003-2007 one, NREI reports.
Harvard economist Ray Torto tells Bisnow these changes mean the connection between office employment and rent growth is weak this time around.
Law firm Chiesa Shahinian & Giantomasi's co-chair of real estate, Mitch Berkey, agrees, telling us the link between “economic recovery and increase in commercial rents has been broken” as CFOs focus on maximizing what employers get from floor space.
“This less is more approach is evident in the expanded use of telecommuting, flex workstations and open workplace designs,” Mitch says.
“In fact, CoreNet Global predicts that by next year, North American offices will average 151 SF per worker—down about a third from the 225 SF per worker the market saw in 2010.”
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