Office-Using Employment to Lead Demand: Newmark
- Nov 30, 2020
After taking a huge hit along with the rest of the jobs market in April, the first full-month of the pandemic, private sector office-using employment in the 15 largest markets in the U.S. underwent a speedy recovery in the third quarter of 2020, according to a new report from Newmark.
As noted in the report, among the 20.5 million nonfarm jobs that disappeared due to the spread of COVID-19 in April, 3.1 million were office-using jobs in the private sector. The wound to the office sector was deep, but it began to heal in short order, with 30.2 percent of the office-using positions lost in the second quarter returning by the third quarter.
Seattle led the way with a recovery rate of 78.1 percent, while Dallas, Phoenix, Detroit and Boston all exceeded the national average. The expeditious return of positions compared to previous economic downturns is a positive indicator for the office sector which, like the multifamily sector, depends on high-wage employment as a leading driver of demand, according to the report.
Not all categories of office-using employment, however, are on equal footing in the move toward the renewal of demand for office space. The professional and business services sector, which accounts for 56.5 percent of office-using jobs in the 15 largest U.S. markets, lost between 4 and 7 percent of jobs in the second quarter, but quickly rebounded in the third quarter with nearly all of the metros posting job growth. Seattle and Dallas led the charge again, recording a respective 94.1 and 71.8 percent in PBS recapture rates.
“Given the diversity of PBS jobs as well as the strong third-quarter recovery rates, markets with above-average concentrations of PBS jobs may see office-using employment recover more rapidly,” according to the Newmark report. “While employment growth in all office-using sectors is beneficial for demand, PBS’s size makes it critical for rebuilding office market confidence.”
The financial activities sector, second in size to the PBS sector, logged the fastest national recovery rate among the office-using sectors at 55 percent. The information sector, reliant on economies of scale in its recovery, has been less consistent. While the New York, Los Angeles and Seattle—the three largest information markets—experienced the highest recovery rates, seven top markets continued to see information sector job losses.
One unifying factor among the PBS, financial activities and information sectors is the increased use of remote working amid the pandemic, which has left many office buildings underutilized. And while many private sector office-using companies are opting to commit to remote-work arrangements for the long term, Newmark expects that the office sector will survive the trend.
“Office-using employment growth may support stronger office demand once firms begin ‘re-boarding,'” states the report. “Even as tenants face pressure to reduce occupancy costs, they also are recognizing during this forced remote work experiment that building corporate culture and mentoring staff without face-to-face interaction is a challenge.”
Read the full report by Newmark