The Expert: Can Optimism Alone Cure Our Ails?

The past month has been remarkable. Words like meltdown, Armageddon and implosion have now been replaced by green shoots, upturn and recovery, with economists and pundits from all corners of the country claiming that the worst is behind us and echoing promises of expansion and growth as early as the next quarter. For office landlords and investors alike, this is a seductive argument and calls into question many of the bearish forecasts made just a few months ago.Certainly sentiment can have a dramatic effect on consumer behavior and investor confidence. But can this sentiment lead to tenants occupying more office space or at least not returning excess space to the sublease market?The answer is probably yes in the short term but no in the medium term. The outlook for the office market is certainly more positive than just a few months ago and will be reflected in smaller increases in the national vacancy rate as previously anticipated, but this may be a temporary phenomenon and will most likely push some of the bad news back into 2010.While real estate decision makers will be more hesitant to release unused space, CFOs will push hard to reduce real estate costs and head counts where possible. While April’s job losses were “only” 539,000 versus the consensus expectation of 610,000, the economy is easily on track to lose 3 million jobs in the first half of 2009. Lost jobs, and particularly, lost office jobs, will have a destructive effect on the office leasing marketThe beginning of any recovery begins with talk of “hitting the bottom” or “things not getting any worse,” but the damage to balance sheets, both corporate and personal, has been substantial. To think that the office market will snap back anytime soon would be a mistake. First will come a period when job losses start to shrink to near zero, then possibly a six- to 12-month period of jobless recovery. Then businesses will finally start to add workers. Only at this point will there be a sustained rise in demand for office premises.Ross Moore is executive vice president & director of market and economic research for Colliers International USA.