Office Performance Mixed Amid Uneven Growth Distribution

The U.S. economic expansion could soon become the longest in history, but that growth is unevenly distributed, which means different office markets perform very differently, reported Cushman & Wakefield, New York.

C&W studied 35 metros’ job growth, office rent growth and office property value change. “Jobs are the lifeblood of commercial real estate,” said Cushman & Wakefield Americas Head of Applied Research Ken McCarthy. “When employment rises, so does demand for office space. This is best illustrated by comparing the change in office-using employment with office-space absorption.”

McCarthy noted certain “hotspots” across the country–metropolitan areas that have outperformed the national job growth average. “The local office markets in these metros tend to reflect job growth, although there are variations based on local office market factors,” he said in Cushman’s Spotlight on U.S. Employment report.

The report called these hotspots “All-Star” markets–those that added jobs at a breakneck pace throughout the current expansion. All-Star metros include Dallas, New York, San Francisco and Riverside/San Bernardino, Calif.

Other metros just missed All-Star status but have consistently performed well above the U.S. average. Cushman said Nashville, Phoenix, Denver and Atlanta are in this “Overachiever” category.

Metros with job growth close to the national average fall into Cushman’s “Middle of the Road” category. Examples include Boston, Orange County, Calif., Portland, Ore., and Raleigh/Durham, N.C.

In some metros job growth strengthened later in the expansion. “Some of these MSAs are above average, others are below average,” McCarthy said. He called these metros “Late Bloomers” and said Las Vegas, Tampa and Jacksonville, Fla., and Oakland, Calif. fall into this category.

Overall, the Southeast has long been the fastest-growing region in the nation, the report said, noting employment in this area has increased more than 73 percent since 1990. “The Southeast has long been a magnet for people looking for a more favorable climate than that of the Northeast and Midwest,” the report said. “As the population has moved south, so have jobs. With those jobs have come healthy levels of absorption, rent growth and office property values.”