One Sure Sign of Commercial Real Estate Market Health

Dan Wagner says commercial real estate fundamentals remain strong in markets across the United States, including Atlanta.

ATLANTA—The Great Recession has had a severe and lasting impact on the American workforce—and on Atlanta. Atlanta has seen more than 180,000 job losses. But Dan Wagner , southeast research manager at CBRE , says the same holds true for office assets. His research shows the relationship between unemployment and vacancy is historically strong in Atlanta. “The unemployment ‘hump’ during the Great Recession was slightly deeper in Atlanta than at the national level,” Wagner tells GlobeSt.com. “Additionally, recent data chronicle the convergence of vacancy and unemployment, demonstrating a return to equilibrium. The takeaway: Atlanta’s recent return to the normal historical relationship between unemployment and vacancy suggests Atlanta remains in recovery rather than teetering on contraction.” Taking this a step further, Wagner says there is a very strong correlation between job additions in the market and net absorption of office space . Occupancy gains can be fairly accurately measured against a rise in net new hiring activity, he explains, particularly within office demand producing job sectors. His best advice for monitoring the market: Keep an eye on net job gains on a monthly basis can reveal additional details about growth industries and how their space needs might change “The data also reveal building owners and investors to be in an enviable positon, realizing strong occupancy gains when job growth is robust, and shielded from immediate and potentially severe occupancy losses when disruptions occur in the economy,” Wagner says. “This is evidenced by the deep employment losses in 2008 and 2009; while significant losses were recorded in two consecutive years, the inability of companies to quickly shed space acted to buoy occupancy levels, if only temporarily.” What followed the steep employment decline was lackluster office performance for four consecutive years—2008 through 2011. According to Wagner, the in-place leases prevented sudden and severe negative absorption, with tenants only able to shed excess space as the leases “burned off” over time or a subtenant was secured. “Fast forward to today, and job growth continues to fuel the Atlanta market, with over 300,000 new positions added in just the last five years,” Wagner says. “And year-over-year totals have the market up 83,300 positions. Given Atlanta’s low overall unemployment and continued strong employee growth, tenant demand is expected to remain along its current trajectory in the near-term—but be mindful of the employment indicators.” Do you agree with these four reasons Atlanta will weather the next storm better? Read my recent column and sound off.