Office Vacancy vs. Total Payroll Employment

Signs of an economic recovery abound, but they haven’t yet shown up in the U.S. office market as the vacancy rate gained another 50 basis points to end the first quarter at 17.9 percent. This means that the rate of softening accelerated from the fourth quarter when vacancy rose by 30 basis points. Nevertheless, a recovery is likely to begin in the next three to four quarters. Following the 2001 recession, quarterly employment (the average of the monthly payroll numbers) bottomed out in the second quarter of 2003, while the vacancy rate peaked in the first quarter of 2004. Following the 1990-91 recession, employment bottomed and vacancy peaked simultaneously in the third quarter of 1991. In the current cycle, quarterly employment appears to have hit bottom in the fourth quarter of 2009. If the pattern after the last recession holds, vacancy could peak as early as the third quarter. Other dynamics besides employment will influence this timing such as the amount of shadow space (unoccupied space not officially counted as vacant) that will have to be filled before tenants need new space. Nevertheless, if employers continue to hire in the months ahead, which seems likely, vacancy should top out by the end of this year.   Source: U.S. Bureau of Labor Statistics, Grubb & Ellis