I don’t want to be a wet blanket, but the market may be worse than statistics indicate.
In 2000, the suburban office market supply was 72 million s.f and the availability rate was 6.1%. If the average utilization of space was 250 s.f. per person, about 271,000 people occupied this space. Unemployment at this time was 2.7%.
Fast forward to 2010. Supply increased to 87 million s.f. because low vacancy and high rents justified new construction. The availability rate is currently 23%. The unemployment rate has increased from 2.7% to 8.3%.
If we assume that the average square feet per person is 225 s.f. per person, then workers are utilizing approximately 57,687,075 s.f. With supply at 87 million s.f., space utilization is 66%, equating to a 33% availability rate. An additional 10% is not being utilized, but not on the market is referred to as shadow space.
What happens in the next five years when leases expire, if the square feet per person goes to 175 s.f. per person, and unemployment drops to 6.1% as predicted?
In 2015, factoring in the expected unemployment rate decline and assuming the square feet per person is broken up into 50% of employees occupying 200 s.f., with another 50% occupying 175 s.f. (due to hot desks, mobility, hoteling, etc.).This means that approximately 49 million s.f. is being utilized. If supply does not change, space utilization will be 56%. Assuming tenants with lease expirations were underutilizing their space, the true availability rate could be in the mid-40’s.
Even though there is no new construction and unemployment goes down, the availability rate in 2015 could be greater than what we have today.