The US office market is getting leaner and more efficient in response to an evolving and multifaceted economic climate, according to Steven W. Ford, chairman and chief elected officer of the Building Owners and Managers Association (BOMA) International.
Ford, senior managing director, facilities management, Cushman & Wakefield, Inc., delivered his State of the Industry address June 27 at BOMA’s annual conference in Anaheim, California.
Citing BOMA’s soon to be released 2005 Experience Exchange Report, Ford said “between 2003 and 2004, building management decreased their total operating expenses by three percent and administrative costs by one percent. The decrease is even more pronounced when you look at corporate facility management fees where administrative costs were reduced from 91 cents in 2003 to 86 cents in 2004 per rentable square foot, or more than five percent.”
Industry experts have predicted an improvement in office vacancy rates, but the current data is less than desirable for a robust economy.
“With overall office vacancy rates hovering in the 14 to 15 percent range nationwide, a full recovery is far from complete,” said Ford. “Cushman & Wakefield forecasts predict a continued decline to 13.4 percent by year-end 2006. Total commercial construction remains in check and is minimal with only 38.06 million square feet compared to 37.4 million square feet at this time last year.”
Ford identified emerging sectors of the office building tenant structure.
“The bulk of office leasing activity is often in the finance industry,” he said. “However, in 2003, health services and biotech related manufacturing emerged as significant office occupiers, with legal services and finance coming in behind. In the first quarter of 2005, the finance industry has re-established a firm lead with 3.24 million square feet of leasing activity as recorded by Cushman & Wakefield research statistics.
“Strength in the business services industry has also emerged, with a 7.9 percent share of leasing activity (by square footage), indicating businesses’ growing desire for support services. While economic forecasts may continue to be cautious, they are still optimistic, which should continue to bolster activity in finance, insurance, real estate, and business services.”
Demographics, Ford said, is a factor in the changes currently taking place in the office market.
“Another vital influence in leasing activity dispersion is changes in demographics, specifically population. Cushman & Wakefield research statistics show that the health services industry was a major player in the top 100 leases of 2003, with a 3.9 percent share of square footage leased. The trend is continuing. The Baby Boomer generation is aging, and the need for healthcare is imminent. Already in the first quarter of 2005, the industry has leased 884,741 million square feet of space, 5.1percent of overall leasing activity. Employment growth in health services is expected to grow consistently for the next five years.”
As a result of a construction boom a few years ago, the recent trend has been a decrease in new construction.
“2001-2002 construction numbers were far higher, responding to the demand at the height of the market. There was 122 million square feet of construction in the first quarter of 2001, decreasing slightly by the first quarter of 2002 to 62.53 million square feet of construction activity. 3.1 million square feet of completions this quarter matched that of the first quarter last year, the lowest number of completions witnessed since 1996.”
A full transcript of this presentation may be obtained by contacting BOMA International.
Founded in 1907, the Building Owners and Managers Association (BOMA) International is a dynamic international federation of over 100 local associations. The 19,000-plus members of BOMA International own or manage over 9 billion square feet of downtown and suburban commercial properties and facilities in North America and abroad. BOMA’s mission is to enhance the human, intellectual and physical assets of the commercial real estate industry through advocacy, education, research, standards and information. For more information, please visit the BOMA International Web site at www.boma.org.
Please CLICK HERE to download and review the text of the State of the Industry Address.
To review the "What Happened" document detailing the events of the convention, please CLICK HERE.
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