Subdued employment growth, business confidence weigh on office rentals
Continued weak growth in service-sector employment and low business confidence levels are having a knock-on effect on the demand for office space, making a recovery from the current high levels of office vacancies unlikely, Rode & Associates chief property economist and professional valuer Erwin Rode predicts.
“Given the underperformance of important drivers of office demand, a sudden improvement in office vacancy rates should not be expected . . . given the tendency for the growth in employment and the growth in the demand for office space to move together over time,” he noted in a statement.
Also evident, he added, were that changes in employment explained roughly 80% of the change in the demand for office space, with services-sector employment and office demand shrinking simultaneously.
Moreover, recent data had suggested a strong relationship between business confidence and changes in office demand.
“Business confidence has, since the start of 2011, moved jaggedly sideways – slightly below the neutral index level of 50 – and is now well below 50. An index figure of 50 indicates neutrality, while 100 indicates extreme confidence and 0 extreme lack of confidence.
“An explanation for this relationship is, of course, that business leaders do not hire employees when the future is too uncertain and there is [thus] no need for extra office space either,” he noted.
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