HERNDON, VA. — A new forecast released by the NAIOP Research Foundation calls for approximately 39.7 million square feet of net absorption of office space in 2017. That is about 10 million square feet per quarter — similar to the 41.4 million square feet absorbed in 2016.
Greater than expected hiring in the office-using sectors of the economy led to 14.8 million square feet of positive net absorption in the fourth quarter of 2016, well above the 7.8 million square feet that had been projected. The annualized growth rate in office-using jobs was 2.52 percent in the first quarter of 2017, compared with 1.58 percent growth in overall nonfarm payroll employment, according to the Bureau of Labor Statistics.
If growth in office-using employment continues at such a pace, the need for office space will expand rapidly and thus cause actual absorption to come in near or above the 39.7 million square feet of total absorption projected for all of 2017. However, prior experience suggests that growth in the number of office-using jobs will likely decelerate as it moves closer to the overall employment growth average over the long term, according to NAIOP. The forecast is also driven, in part, by expectations of higher short- and long-term interest rates.
Many uncertainties remain, including potential tax reform, healthcare reform and changes in federal budgeting. If the Trump administration can strike deals on some or all of these fronts in ways that are favorable to business, the economy may experience a significant increase in the rate of overall growth, increasing annual GDP growth to between 2.5 percent and 3.5 percent.
The current model forecasts a slight decline — to 37.1 million square feet — of positive net absorption in the office sector during 2018. However, that is based on data from the fourth quarter of 2016 that reflects pre- and post-2016 election uncertainty. As the Trump administration’s political agenda takes hold, the forecast will likely be revised.
Both CEO and consumer confidence remain high and have been rising steadily since the election, signaling that many market participants still expect growth, according to Dr. Hany Guirguis of Manhattan College and Dr. Joshua Harris of the University of Central Florida, authors of The NAIOP Office Space Demand Forecast. As such, the potential for office demand that is higher than forecast is real, yet difficult to predict.
Herndon-based NAIOP, the Commercial Real Estate Development Association, is an industry provider of networking opportunities, educational programs, timely research and legislative representation.
— Kristin Hiller