Grubb & Ellis's Bob Bach Sees More Office Vacancies Ahead

SANTA ANA, CA--Bob Bach (top right photo), senior vice president and chief economist at Grubb & Ellis Co. notes in his regular market updates, the U.S. office vacancy rate ended 2008 at 14.8 percent, an increase of 50 basis points in the fourth quarter and 180 basis points since year-end 2007.

As softening cycles go, this one has been moderate so far; during the opening four quarters of the prior softening cycle, the vacancy rate shot up by 450 basis points (2000-Q3 to 2001-Q3).

(Fourth quarter 2008 Vacancy Chart below)

The more muted response this time is all the more surprising because the labor market shed a relatively shallow 1.5 million payroll jobs during and after the 2001 recession, while it has already lost 2.6 million jobs since the current recession began in December 2007, with 1.9 million of those coming in the last four months of 2008.

Because the office market lags changes in employment, the market is expected to register steeper vacancy increases in 2009 in response to the sharp deterioration in the labor market late last year.

For more information or to speak with Bob Bach, please contact Janice McDill at 312.698.6707.

What does the latest job data mean to commercial real estate industry?

SANTA ANA, CA--Bob Bach, (top right photo) Senior Vice President and Chief Economist,Grubb & Ellis Co., notes in his periodic market report:

The labor market shed a seasonally adjusted 533,000 net payroll jobs in November, the highest monthly loss since December, 1974 and well above the consensus among economists for a loss of 300,000 to 350,000.

Additionally, September and October losses were revised downward by a combined 199,000.

The education and health services sector added 52,000 in November while government added 7,000 and natural resources and mining added 4,000. All other sectors lost jobs, with the largest loss coming in the professional and business services sector, where employers eliminated 136,000 positions including 78,000 in temporary help services.

The labor market began shrinking in January, but the losses through August were shallow compared with prior recessions, totaling 655,000 during that eight-month period.

Since September, however, losses have accelerated sharply, totaling 1.2 million during that three-month period, putting year-to-date losses at 1.9 million.

The acceleration in job losses since September is worrisome. The recession has entered its 12th month, already longer than the prior two recessions, but it appears to be growing in intensity. The prior two recessions in 1990-91 and 2001 both lasted for eight months.

The impact on commercial real estate is troubling. Job growth is the most important leading indicator of office space absorption, and it supports leasing activity for apartments, shopping centers and, to a lesser extent, industrial properties.

The recent acceleration in job losses capped by the massive loss in November indicates that leasing market fundamentals are poised to soften further. It is very likely that job losses will continue through most of 2009, meaning that tenant demand for commercial real estate, which lags the labor market, may not firm up until 2010.

For more information or to speak with Bob Bach, please contact Janice McDill, Vice President, Public & Investor Relations, at 312.698.6707 or via email at mailto:janice.mcdill@grubb-ellis.com