Categories Economy, Narrative

Highlights from Arizona State University’s Annual Economic Outlook

Over the last two weeks, I have talked about the numbers behind the job numbers in the US and Arizona. Of course, there are people much more qualified and articulate who actually track this kind of data for a living. Arizona State University’s annual Economic Outlook produced some quality information that I thought I would pass along. I am making sure my team focuses on the daily slog to get through to the other side of this Great Recession. We are still in it and it seems it will last another two years here in Arizona.

Below, there are a number of different graphs that tell the story of the US and Arizona job and population growth in a great format. Additionally, I have added some information on the millennial generation and their impact on our recovery. Take five minutes and scroll down. If you are really interested in the complete story (I only pulled a select handful of slides), I have included the link to the complete presentations below each group.

I promise, no jobs discussions for an extended period. Next week, back to some cool, interesting, and thought provoking articles.



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Categories Economy, Narrative

Comparing the U.S. and Phoenix Economies

Last week I discussed the labor market and what is happening in Arizona with job gains and the office market. This week I have pulled some information from the Brookings Institute on our economy and the recovery compared to the rest of the US. Here are some of my takeaways:

–Phoenix will remain one of the fastest growing metropolitan areas in the US over the next decade and even this year.

–We will do just fine, but have a ways to go.

–I believe the holdup is housing. Metro Phoenix remains very much a growth metropolis. Housing starts have been way, way off for the past six years and in 2014 they are horrible. It is unheard of to have under 10,000 starts for our metro area six years into the recovery.

–I did include a nice article from Forbes about the 20 fastest growing cities in America. Phoenix is now #3. Scroll down below the Brookings info to read more.

Keep your long term positive outlook for Arizona high. For today, keep your head down and keep grinding it out.



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America’s 20 Fastest-Growing Cities
By: Erin Carlyle
February 14, 2014

Job Creation
View the entire slideshow of photos at:

When New York-based research firm Ipreo was looking to expand into a new office, the company searched nation-wide for the perfect location. “The primary goal was access to talent,” says O’Hara Macken, an EVP and managing director, “and the [Research] Triangle was our top choice in the U.S.” Ipreo, which provides data, software, and intelligence to the capital markets and public companies, opened an outpost in Raleigh, N.C. last year. It moved 70 employees from New York and Bethseda, Md., hired 80 locals, and plans to hire 100 more.

Raleigh, N. C. is growing at a healthy clip–fast enough to land  the No. 2 spot on our annual list of America’s Fastest-Growing Cities. At the nearby Research Triangle Park, more than 170 companies have outposts, including IBM, GlaxoSmithKline, Syngenta, Credit Suisse, and Cisco. The wider area is also home to several major universities: North Carolina State University is in Raleigh, while Duke University is situated in nearby Durham, and the University of North Carolina at Chapel Hill. The combination of universities and job opportunities has made for a highly educated population: nearly 50% of people ages 25 to 65 have a college degree. These draws keep many grads in the local area, says Harvey Schmitt, chief executive of the Greater Raleigh Chamber of Commerce. “We’ve got great quality of life. You’ve got the university system, great health care, a decent climate year-round, and affordable cost-of-living.”

Those factors, plus a relatively low cost of doing business (FORBES ranks N.C. 4th on its list of Best States for Business) are attracting more companies to the area. MetLife recently opened a 1,300-employee IT campus in Cary, a western suburb, and software company Citrix is opening a campus in Raleigh’s downtown later this year. Raleigh is also a hub of smart grid activity, and the president recently announced a $140 million grant to create an advanced manufacturing institute to NC State. Raleigh’s jobs grew at a rate of 2.44% year-over-year while the population jumped an estimated 2.15% in 2013. Even faster population growth is expected in 2014. All of this was enough to push Raleigh up two spots from its slot last year, to rank No. 2.

Behind the numbers:
To cull our list, we began with the 100 most populous Metropolitan Statistical Areas (MSAs) in the U.S., geographic areas designated by the U.S. Office of Management and Budget that  include cities and their surrounding suburbs. We rated these places based on six metrics. Using data from Moody’s Analytics, we assessed the estimated rates of population growth for 2013 and 2014, year-over-year job growth for 2013, and the rate of gross metro product growth—a.k.a. the economic growth rate–for 2013. We also considered federal unemployment data and median salaries for local college-educated workers, courtesy of The result is a list of the 20 fastest-growing metro areas in America in terms of population and economy.

Two states–Florida and Texas–each boast four cities on our Fastest-Growing Cities List this year, with three of the Texas cities ranking in the top 10: Austin (No. 1), Dallas (No. 4), Houston (No. 10), and San Antonio (No. 20). Strong population growth in 2013 and unemployment under 6% –well under the national rate of 6.7%–helped all four cities make the top 20, although last year the cities did even better, with Austin, Houston, and Dallas sweeping the top three slots. Given its business-friendly regulatory environment, lack of state income tax for corporations or people, and highly educated labor market, it’s perhaps not surprising that Texas continue to grow.

Austin takes the top spot on FORBES’ annual list of America’s Fastest-Growing Cities for the 4th year in a row. With a 2.5% population growth rate (estimated annual) for 2013—the highest of all the geographic regions—and an economy that expanded 5.88% last year, it’s hard for other cities to compete these days. But the area wasn’t always booming. The first tech bust wreaked havoc on the region, which was heavily weighted in software, semiconductors, and dotcoms. In 2004, the Austin Chamber of Commerce launched a proactive effort to recruit businesses from diverse industries, focusing exclusively on California, the Upper Midwest, and the Northeastern states—places where the cost of doing business is at a distinct disadvantage compared to Austin’s. “We’ve had 307 companies move here in the last 9 years,” says Dave Porter, Senior Vice President, Economic Development at the Austin Chamber. “And about 100 of those come from California.”

With the 48,000-student University of Texas churning out engineers and computer scientists, the five-county area has a robust workforce–38% college-educated—to fill up those desks. Half of the adult transplants flowing in possess a college degree, Porter says. In addition to major corporations like Whole Foods and Dell (in Round Rock, part of the greater MSA), Austin now boasts some 4,000 technology companies which represent about 35% of the area’s total payroll. Athena Health is bringing 607 jobs to Austin, and San Francisco-based Dropbox is expanding there. As for keeping its edge, Austin has collected over $40million from the private sector to keep recruitment efforts up. “The competition for jobs is fierce. We can’t let our guard down,” Porter says.

Phoenix also makes the list this year, jumping a whopping five spots to No. 3. “That certainly shouldn’t be a surprise to anybody, because they are among your leading growth states,” says Lee McPheters, a director of the JPMorgan Chase Economic Outlook Center of Arizona State University’s W. P. Carey School of Business. “But they were really hit hard by this most recent recession, which is why things have been bit subdued over the past few years.” Construction industry jobs, which dropped 50% in the state during the downturn, are up 5% year-over-year, McPheters notes. Surprisingly, Phoenix—not New York—is No. 1 in the nation in terms of growth in finance industry jobs, adding 8,300 from December 2012 to 2013, says McPheters, whose research team does its own economic rankings each month based on Bureau of Labor Statistics data. Insurance and health care are also growth engines. Add to that an estimated population growth rate of 1.67% for last year and a projected growth rate of 2.46% in 2014, and Phoenix is expected to be the 4th fastest-growing metro area in terms of population this calendar year.

Dallas, on the other hand, moved down a spot, from No. 3 to No. 4. Considering that most of the country is seeing sluggish population growth, Dallas’ projected rate of 2.08% for 2014 is pretty good, and the local economy’s year-over-year growth rate of 3.57% quite healthy. A strong business climate, low taxes, and the ease of serving both the East and West Coasts are among the metro area’s business attractions. Over the past two years, some 51 companies moved or announced plans to move to the Dallas-Fort Worth area. Among them are Neovia Logistics Services, a logistics company that moved its headquarters from Illinois to the western suburb of Las Colinas, and Kohl’s, which announced plans to open a customer-service center in Dallas. Motorola Mobility also recently opened the first smartphone assembly plant in the United States, hiring 2,000 workers in Fort Worth (part of the greater M.S.A.). Economic strength: the area is a hub for logistics and distribution, technology, and support services like law and accounting firms, yet isn’t dominated by any single industry. “That’s why we entered the recession so much later than everyone else, and we’ll be able to come out of it sooner,” says Duane Dankesreiter, VP of Research for the Dallas Regional Chamber.

Salt Lake ranks No. 5 on the list, as it did last year, thanks to its strong jobs market: its 4% unemployment rate (as of December, seasonally adjusted) is the 2nd-best in the nation. “Utah’s economy has really become much more diverse than a classic western economy focused on extractive natural resources, federal defense—the things we used to be very dependent on,” says Pam Perlich, a senior research economist at the University of Utah who specializes in regional economics and demographics. She points to growth in construction, residential and commercial real estate, and a burgeoning energy sector as lifting the region. Tourism, manufacturing, professional and business services, and information are also help driving the region’s growth. A new light rail system has also been a factor, luring both housing and jobs along its corridor.

Categories Economy, Narrative, Office Market

A Look at the Numbers Behind the Current Headlines About Job Creation

Job creation news made headlines a few weeks back touting that the United States had recovered all of the jobs that were lost during the great recession. In Arizona, however, we are still way behind our pre-recession levels. Over the next two weeks, we are going to try to tie jobs, the Phoenix office market, and Phoenix population growth all together to make sense of our market.  

For this week, let’s look at the Phoenix office market and my favorite topic–job growth:

–Job creation remains anemic. In Arizona, we are still a long way away from getting back to our pre-recession levels.

–The office market has bifurcated into two markets—Sales and Leasing. Large investor demand for class A properties has caused the market to compress cap rates, and created demand for the construction of new buildings. The leasing market, on the other hand, remains extremely challenging with all segments still over 20% vacant. A 20% vacancy is not a market where sustained lease rate increases will continue. 

–Absorption for Q1 2014 was very good, creating some justified hope that the market recovery will begin to accelerate.

–I am a realist and I want to see vacancies in the teens (in any class of building A, B or C) before I tell my landlord clients we are on the path to recovery.  

I remain very optimistic over the long term. Seven years into an office market with plus 20% vacancy is daunting. I am hopeful we can keep the year rolling and finally get back into the high teens at the end of this year or at worst case, in 2015.



Historical Phoenix Office Market Statistics 2
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View the entire slideshow at:

The Unemployment Puzzle: Where Have All the Workers Gone?

The U.S. unemployment rate is down, but rising numbers of Americans have dropped out of the labor force entirely


April 4, 2014

The problem is not just a cyclical downturn. We need to tackle deep structural issues in the U.S. economy. Bloomberg News

A big puzzle looms over the U.S. economy: Friday’s jobs report tells us that the unemployment rate has fallen to 6.7% from a peak of 10% at the height of the Great Recession. But at the same time, only 63.2% of Americans 16 or older are participating in the labor force, which, while up a bit in March, is down substantially since 2000. As recently as the late 1990s, the U.S. was a nation in which employment, job creation and labor force participation went hand in hand. That is no longer the case.
What’s going on? Think of the labor market as a spring bash you’ve been throwing with great success for many years. You’ve sent out the invitations again, but this time the response is much less enthusiastic than at the same point in previous years.

One possibility is that you just need to beat the bushes more, using reminders of past fun as “stimulus” to get people’s attention. Another possibility is that interest has shifted away from your big party to other activities.

Economists are sorting out which of these scenarios best explains the slack numbers on labor-force participation—and offers the best hope of reversing them. Is the problem cyclical, so that, if we push for faster growth, workers will come back, as they have in the past with upturns in the business cycle? Or do deeper structural problems in the economy have to be fixed before we can expect any real progress? To the extent that problems are related to retirement or work disincentives that are either hard to change or created by policy, familiar monetary or fiscal policies may have little effect—a point getting too little attention in Washington.

Employment Is Recovering
Participation Is Down

The unemployment rate, the figure that dominates reporting on the economy, is the fraction of the labor force (those working or seeking work) that is unemployed. This rate has declined slowly since the end of the Great Recession. What hasn’t recovered over that same period is the labor force participation rate, which today stands roughly where it did in 1977.

Labor force participation rates increased from the mid-1960s through the 1990s, driven by more women entering the workforce, baby boomers entering prime working years in the 1970s and 1980s, and increasing pay for skilled laborers. But over the past decade, these trends have leveled off. At the same time, the participation rate has fallen, particularly in the aftermath of the recession.

In one view, this decline is just a temporary, cyclical result of the Great Recession. If so, we should expect workers to come back as the economy continues to expand. Some research supports this view. A 2013 study by economists at the Federal Reserve Bank of San Francisco found that states with bigger declines in employment saw bigger declines in labor-force participation. It also found a positive relationship between these variables in past recessions and recoveries.

But structural changes are plainly at work too, based in part on slower-moving demographic factors. A 2012 study by economists at the Federal Reserve Bank of Chicago estimated that about one-quarter of the decline in labor-force participation since the start of the Great Recession can be traced to retirements. Other economists have attributed about half of the drop to the aging of baby boomers.

Baby boomers can’t be the whole story, though, since the participation rate has declined for younger workers too. This part of the drop is a function of various factors, including simple discouragement, poor work incentives created by public policies, inadequate schooling and training, and a greater propensity to seek disability insurance. Globalization and technological change have also reduced employment and wage growth for low-skilled workers—which raises questions about whether current policy is focused enough on helping workers to achieve the skills necessary to work productively and earn decent incomes.

Figuring out which explanation best fits today’s labor market is important because the different narratives point to different possible solutions. To the extent that labor-force participation and job creation have a cyclical element, activist demand policies by the federal government may make sense. Does this mean that the Obama administration’s “targeted, timely and temporary” stimulus package was the right approach? Actually, no. Increasingly, it appears to have been a poor match for the severity of the downturn and the magnitude of the required boost.

After the Great Recession’s sharp decline in investment and employment, U.S. business probably needed a more curative jolt to restore confidence. A sustained infrastructure program, rather than a temporary one for “shovel-ready” projects, would have provided more reassurance of longer-term demand. And far-reaching tax reform could have provided both a near-term fillip from front-loaded business tax cuts and a credible prospect for future growth.

What we don’t know is whether the Obama’s administration’s activist policies failed to draw more Americans back to work because they were poorly executed or because they didn’t do enough to raise aggregate demand. A better designed activist fiscal policy would have made more headway in encouraging growth, but deeper factors behind the downward shift in labor force participation still remain.

The Federal Reserve also has used monetary policy, through aggressive “quantitative easing,” to combat the shock from the financial crisis. In assessing this move’s effect on the labor force, a key question again is whether the problem is best seen as cyclical or structural. If labor-force participation is down because of cyclical factors, keeping interest rates low has been a smart policy, even as unemployment falls—in fact, even if it continues to fall to very low levels to draw nonparticipants back into the labor force.

Research by economists at the Federal Reserve Board published in 2013 suggests that bringing Americans back to work in this way might succeed without sparking inflation—if low labor-force participation is largely a result of a conventional downturn in business activity. If the real problem lies in the rules of the game—that is, structural factors accounting for labor force participation—such a highly expansionary monetary policy ultimately runs the risk of igniting inflation.

As I see it, the policy response to our disturbing doldrums in the labor market has indeed struck the wrong balance. Whatever can be said for shorter-term measures to jump-start job creation and business activity, it seems clear by this late date that our problems are in no small part structural. What we need most urgently is to rethink the federal government’s wider role in the labor market. The importance of structural problems doesn’t imply that policy can play no role beyond conventional fiscal or monetary policy.

The fierce debate now going on in Washington about extending unemployment insurance and raising the minimum wage largely ignores these issues. Such policies may affect the incomes of some Americans, but they won’t do much to expand opportunity and bring more people back into the labor force. Sparking a broad-based return to the labor force demands a more ambitious agenda.

In the first place, we need to encourage low-wage workers and remove barriers to their lasting participation in the labor force. This encouragement is particularly important given the downward pressure on wages encountered by many low-skilled employees in the face of globalization and technological change. The Earned Income Tax Credit, which supplements the income of low-wage workers as they earn more, is supported by many conservatives and liberals alike. Expanding this program’s payments for single workers (that is, beyond workers with families)—or using an alternative low-wage subsidy—would create more powerful work incentives. Phasing out the support over a longer income range, so that it provides more help to those who succeed and advance and reduces the marginal tax rate on work as the support phases out, also makes sense. These changes would cost money, but they could easily be accommodated in a broad tax-reform package.

Another priority for bringing low-wage workers back into the labor force is reforming disability insurance, which is part of the Social Security system. Since changes in qualifications in the 1980s made it much easier to receive federal disability payments, the percentage of individuals reporting disabilities who are still working has dropped by half. For some, disability insurance has become an incentive to give up on work—but it doesn’t have to be this way. The program could be restructured to instead provide the employers of disabled employees with tax advantages for retraining them to remain on the job.

The Affordable Care Act, while giving some Americans access to health insurance for the first time, also creates certain disincentives for work. The law’s generous private insurance subsidies phase out as income rises. In a recent study that I co-wrote with John Cogan and Daniel Kessler of Stanford University, we estimate that the amount of the federal subsidy can decline by as much as 50 cents for each dollar of additional earnings. This implicit tax comes on top of existing income and payroll taxes, raising the effective marginal tax rate on earnings to as much as 80% to 100% for some middle-income families. A broader tax reform that gives a more uniform subsidy for health insurance and health spending would reduce this problem.

A second broad area of policy in need of structural reform is unemployment insurance. Unemployment insurance was originally designed to provide income to workers during temporary spells of joblessness. Longer spells of unemployment during the Great Recession have led to continued calls to extend these benefits. Such extensions certainly keep income support in place longer, but they also lengthen spells of unemployment, potentially making workers less attractive to employers going forward.

A better approach would be a policy pivot toward easing the return to work. A first step would be to complement traditional unemployment insurance with block grants to states to support training and workforce development through community colleges and vocational education. Congress could also create Personal Re-employment Accounts for individuals. These accounts would give lump sums to individuals who lose their jobs and make it likelier that they receive some support and training during long periods without unemployment. If such individuals find a job quickly, they could keep some of the money as a re-employment bonus. Advancing and updating skills are also important: Funds currently in other federal training programs could be repurposed to provide this pro-work support.

Finally, in response to the profound change in the demographics of today’s workforce, we really must consider eliminating the Social Security payroll tax on older workers. Today, older workers who delay retirement must keep paying Social Security taxes while receiving virtually no extra benefits—a strong incentive to stop working early. Getting rid of the payroll tax (currently 12.4% for Social Security) for older workers would remove this disincentive and increase employers’ demand for older workers because employers pay half the employees’ payroll tax.

In addition, Social Security reform should dispose of the “retirement earnings test,” which reduces benefits by about 50 cents on the dollar on earnings above $15,000 for individuals aged 62 to 65. This heavy tax directly discourages work. These pro-work reforms to Social Security wouldn’t be budget busters. Additional work by older Americans would produce income and Medicare taxes to offset much of the budget cost—while also slowing down the exit of workers from the economy.

None of the supply-side changes I’ve proposed would be easy to enact. They would require Democrats in Washington to confront the inadequacy of their stimulus policies to raise employment. And they would challenge many Republicans, who have focused their attention on economic growth, pure and simple, rather than on much-needed changes in federal labor policies. They will need to face up to the need for a more opportunity-oriented agenda for work, as Rep. Paul Ryan and Sen. Marco Rubio have argued, rather than simply opposing the extension of unemployment insurance or raising the minimum wage.

John Maynard Keynes once famously declared his fear that, at some point, much of humankind would have to cope with the problems of abundant leisure and little work. Perhaps. But we can no longer sit back and watch as growing numbers of Americans—not just the wealthy or the elderly—exit the labor force. This trend spells trouble for the nation’s economic and fiscal future. It is a bigger and less understood problem than we think, and it requires bolder policy action than we have contemplated so far.

Fewer Working Americans

For the entire article:

U.S. Job Growth Jumps, But Shrinking Labor Force A Blemish

Reuters 2

By: Lucia Mutikani
May 2, 2014

US Jobs 2
A woman looks at her smartphone as she attends the NYC Startup Job Fair in New York, April 11, 2014.

US Jobs 2 3
A help wanted sign is posted on the door of a gas station in Encinitas, California in this September 6, 2013 file photo.

(Reuters) – U.S. employers hired workers at the fastest clip in more than two years in April, pointing to a rebound in economic growth after a dreadful winter and keeping the Federal Reserve on track to end bond purchases this year.

The brightening outlook was, however, tempered somewhat by a sharp increase in the number of people dropping out of the labor force, which pushed the unemployment rate to a 5-1/2-year low of 6.3 percent. Wage growth also was stagnant.

Nonfarm payrolls surged 288,000 last month, the Labor Department said on Friday. That was largest gain since January 2012 and beat economists’ expectations for only a 210,000 rise.

“It lends significant legitimacy to the positive tone in the wide array of post-February economic reports, which have all been consistently pointing to a significant pick-up in economic growth momentum this quarter,” said Millan Mulraine, deputy chief economist at TD Securities in New York.

March and February’s data was revised to show 36,000 more jobs than previously reported.

U.S. stocks briefly rallied on the report, which was later eclipsed by rising tensions in Ukraine. Stocks ended lower, while safe-haven bids pushed the yield in the 30-year U.S. government bond to its lowest level in more than 10 months.

The dollar was flat against a basket of currencies.

About 806,000 people dropped out of the labor force in April, unwinding the previous months’ gains. That helped to push down the unemployment rate 0.4 percentage point to its lowest level since in September 2008.

The labor force participation rate, or the share of working-age Americans who are employed or unemployed but looking for a job, also fell four-tenths of a percentage point to 62.8 percent last month, slipping back to a 36-year low touched in December.

Overall, however, the data suggested the economy was gathering strength and led investors to pull forward their bets on when the Fed will start to raise interest rates.

The strong payrolls growth added to upbeat data such as consumer spending and industrial production in suggesting that sputtering growth in the first quarter was an aberration, weighed down by an unusually cold and disruptive winter.

The Fed on Wednesday shrugged off the dismal first-quarter performance. The U.S. central bank, which announced further reductions to the amount of money it is pumping into the economy through monthly bond purchases, said indications were that “growth in economic activity has picked up recently.”

“It also matches well with the Fed’s expectations for the labor market, excluding the sharp unemployment rate drop, and likely means more $10 billion dollar reductions in monthly asset purchases at future meetings,” said Scott Anderson, chief economist at Bank of the West in San Francisco.


Economists expect second-quarter gross domestic product to top a 3 percent pace. Last month’s drop in the labor force could have been driven by some of the 1.35 million people who lost their longer-term unemployment benefits at the end of last year.

Since they are no longer receiving unemployment benefits they have little incentive to continue looking for work as required by law. Part of the decline in participation in the labor market also reflects changing demographics, as well as people going on disability while waiting to reach retirement.

“Baby boomers are retiring and the various government benefits including disability are contributing to the drop in the participation rate,” said Sung Won Sohn, an economics professor at California State University Channel Islands in Camarillo, California.

Still there is little doubt the labor market is strengthening. A broad measure of unemployment, which includes people who want to work but have stopped looking and those working only part time but who want more work, fell to a 20-year low of 12.3 percent in April. It was at 12.7 percent in March.

In addition, the number of people who have been unemployed for more than six months saw its biggest decline since October 2011 and the average duration of unemployment fell to 35.1 weeks from 35.6 weeks in March.

The short-term jobless rate hit a new cycle-low of 4.1 percent. Employment gains in April were broad-based, with the private sector adding 273,000 jobs and government payrolls rising 15,000. Manufacturing employment increased 12,000 after rising 7,000 in March.

Construction payrolls gained 32,000 after increasing 17,000 in March. The hiring trend could slow in the months ahead as residential construction loses some steam.

Despite the strong gains, average hourly earnings were flat in April, pointing to lack of wage pressure and still ample slack in the economy.

“There is just no sign of any broad-based wage pressure,” said Josh Feinman, chief global economist at Deutsche Asset & Wealth Management in New York. “There is still slack in the labor market and with labor costs still dead in the water, the Fed is probably not going to have to rush (to raise rates).”

The length of the workweek held steady at 34.5 hours last month after bouncing back in March from its winter-depressed levels.

Categories Narrative

American Cities May Have Hit ‘Peak-Office’

I had never heard of the term “Peak Office.” In simple term, Peak Office is like Peak Oil, where the market for the future is less than the past. (Just for fun, I included a peak oil graph below. If you want to read more about Peak Oil, here is a link to a short article:  

With that in mind, Forbes is asking the question, are we at Peak Office? They say some cities may have already hit their Peak Office and are on the demand decline. They point out the trend we have discussed in this narrative that office sites and buildings are going to other uses especially residential. It takes, Joel Kotkin, the author, seven paragraphs to get to the real reason why office development is so bad. The economy is not producing jobs. We finally hit 6.3% nationwide unemployment in April—five years to get back to this rate AND that does not include the fact that we have the lowest labor participation rates since I was in high school (1979 proud graduate of Buena High School, Sierra Vista, AZ). AND worse is that there is another 30% of employed people who are under-employed. Our next two narratives will discuss the job situation further. All of this leads me to suggest the biggest reason for the slow office recovery is the damn economy. The markets with hi-tech jobs are doing just fine, thank you.  

There are other reasons for the decline in office space development including: –Less square feet leased per person. We have tracked this for 30 years and the trend continues. –Self-employed people now working out of their house. I see this as a minor trend. Most of these will either change jobs when they can get a job or grow out of their house and take space. –Changing use of the space. Discussed in this narrative over the past six months. –Mobile workers  

By the way, our Facebook page is loaded with all my past narratives AND other articles (with my comments of course) that may not be quite up with the weekly email or a different topic. I am interested in a great many things, go check it out and “Like” us. Here is the link:

At the bottom, I have some market stats for the value of construction starts year over year, if you want to scroll down.



Peak Office graph

Post Peak Living 2___________________________________________________________________

American Cities May Have Hit ‘Peak Office’

By: Joel Kotkin
November 05, 2013

Despite some hype and a few regional exceptions, the construction of office towers and suburban office parks has not made a significant resurgence in the current recovery. After a century in which office space expanded nationally with every uptick in the economy, we may have reached something close to “peak office” in most markets.

The amount of new office space in development is extraordinarily low by historical standards, outside of a handful of markets. Back in the mid-1980s, according to the commercial real-estate research firm CoStar, upward of 200 million square feet of office space was built annually. After dropping precipitously in the early 1990s, construction rose again to 200 million square feet a year in the early 2000s before dropping well under 150 million square feet in 2006, and lower after that. This year, in what is purported to be the middle of an economic recovery,  we will add barely 30 million square feet, according to Reis Inc.

Even with this paltry construction, vacancy rates nationwide have barely moved, hovering around 17%. This is nowhere near low enough to justify much more construction in the vast majority of markets, where office rents remain well below 2007 levels.

Indeed, the trend in real estate remains to convert office spaces to other uses, particularly residential. Large-scale office construction is happening in just a handful of markets; New York and Houston are the only ones with 10 million square feet being built, with smaller amounts in the works in Boston, Washington, Dallas-Ft. Worth and the San Francisco Bay Area.

Most of the current anemic growth is happening outside downtown areas. Silicon Valley, which is essentially a sprawling suburb, currently has about as much construction as San Francisco. In Houston, another big metro area with robust job growth, there is a new 47-story high-rise being developed downtown, but much of the action is taking place on the periphery, notably in the Energy Corridor. ExxonMobil’s massive new campus, at 3 million square feet, ranks with One World Trade Center in Manhattan as the nation’s largest new office projects.

Through the third quarter this year, the amount of new office space under construction in suburban areas was roughly double the amount being built in central business districts, by CoStar’s count. Furthermore, only 7.1 million square feet of office space was absorbed downtown in the first nine months of 2013, compared to 51.5 million in suburban areas, CoStar says. But overall there is still 100 million square feet less space being used today than in 2007, and at current absorption rates, it could take six or seven years just to get back to where we were before the recession.
The Weak Economy
The key question here is not the geography of office space but why so little is being built. As long as economic growth is modest, don’t expect much change in the skyline in most downtowns, or suburbs. Job growth has been mediocre at best, and much of that has been in the low-wage and part-time category. McJobs and part-time workers do not generally fill office towers.

The dirty little secret of this recovery is that labor participation rates are at the lowest level since 1978. Underemployment is rife, at around 18% to 20%, and much of that likely includes large numbers of people who used to work in offices.

This is true even in New York City, where the rate of “office-using employment” has been dropping since the late 1960s and even in the recovery, has yet to rebound to the levels of 2000.

Changing Use of Space
Just as we have gotten used to more fuel-efficient cars, companies now utilize space more efficiently than before, largely through information technology. This is a trend many companies plan to accelerate. In the past, for example, your average mid-level executive had his own secretary; now it’s more common to have perhaps one aide for several managers. Historically office developers assumed that each worker would require 250 square feet of space; by the end of the decade this could drop to 100 to 125 square feet.

Even the most notoriously bureaucratic of professions, law, is scaling back. A recent Cushman and Wakefield survey found that most firms — many already downsizing — were working to reduce their office footprint per attorney from 800 to 500 square feet. Almost two out of five expect to use “hoteling,” or the sharing of offices among attorneys, something very rare a decade ago.

At the same time, some of the sectors that are the best bets for expansion, such as information technology and media, are increasingly seeking out unconventional office space. Mayor Mike Bloomberg’s drive to upzone large parts of Midtown Manhattan to create ever-taller towers works operates on the assumption that new users will be much like the old ones. But some experts, such as New York-based architect Robert Stern, suggest that ultra high-rise development does not appeal to either creative businesses and tourists, while preserving older districts, with already developed buildings, does.

Self-Employment and Home-Based Businesses
Perhaps the biggest long-term threat lies in the shift from corporate to self-employment. From 2001 to 2012, the number of self-employed workers grew by 14%, according to a recent study by Economic Modeling Specialists. This is occurring not only in the metro areas that suffered the worst during the recession, such as Phoenix, Los Angeles and Riverside-San Bernardino, but also in the healthiest economies such as Houston and Seattle.

Some of these now self-employed workers may end up in small offices, but many don’t leave home at all. Working at home is growing far faster than commuting by either car or transit, and in most U.S. metro areas, far exceeds those who get to work by public conveyance, most often to downtown areas. Over the past decade the number of U.S. telecommuters expanded 41% to some 1.7 million, almost double the much-ballyhooed increase of 900,000 transit riders.

Are We Blowing Another Bubble?
In some specialized, fast-growing markets, new office construction may well be justified. Raleigh is seeing some new construction in its small downtown, as are hot job markets such as Austin and oil-rich Midland, Texas, where a proposed 53-story office tower would be the tallest building between Dallas and Los Angeles.

But in New York, plans for massive new office tower construction seem to contradict an unemployment rate considerably above the national average. Financial services, the primary driver of the Manhattan market, is showing signs of economic distress, with firms moving middle-management jobs to more affordable places such as Richmond, Va.; Pittsburgh; St. Louis; and Jacksonville, Fla.

Perhaps even more worrisome, less than half of the space in new buildings in Manhattan is preleased, compared to over 70% in both Houston and Boston, and a remarkable 92% in San Jose/Silicon Valley. This reflects an apparent dearth of large employers in New York who could conceivably afford and fill ultra-expensive office space in the coming years, a recent article in Crain’s New York points out. Tech companies might be expected to help fill the gap, but we have to remember that after the last boomlet Silicon Alley suffered a steep contraction; it has since recovered, but could be hit hard again if the current bubble pops.

San Francisco, the other current darling of office developers, is even more dependent on the current dot-com boom. The IPOs of Frisco-based firms such as Twitter appear to suggest the prospect of a whole new generation of office occupants. By one account, there is as much as 12 million square feet of new office space in the pipeline in the city, enough to satisfy historical demand for the next 16 years.

Yet past experience shows many of these companies will likely dissolve or merge in the next few years. They may be fewer in numbers and longer established than last time around, as some local boosters eagerly suggest, but most are still unprofitable and many may never be truly viable. Following the 2000 dot-com crash, San Francisco office occupancy dropped roughly 10 million sqaure feet, while tech employment crashed from a high of 34,000 in 2000 to barely 18,000 four years later.  As one real-estate executiveput it at the time. “The office-space market here ”reminds me of the Road Runner cartoon where the Coyote runs into the wall.”

Observers also point out that more traditional businesses, such as banks, continue to ship jobs elsewhere, in large part due to extraordinarily high costs. The fact that pre-leasing for SF’s new office buildings is barely 33% should add to the caution.

None of this suggests there are not some good opportunities for new construction, but the office building’s role as a key indicator of the strength of the U.S. economy has faded. In great cities, rather than a ballyhooed era of new office skyscrapers we will see more conversions and the construction of residential high-rises, as well as medical buildings. The secular trend is for the dispersion of business service employment to smaller markets, and into people’s homes. The glory days of the American office tower are over, and not likely to return soon, given technological trends and a persistently tepid economy.

Peak Ofc 1
These are the 10 U.S. metropolitan areas with the most new construction activity this year through October, based on the dollar value of construction starts. Source: McGraw Hill Construction.

Peak Ofc 2
No. 1: New York-Northern New Jersey-Long Island, NY-NJ-PA MSA
Value Of Construction Starts Through Oct. 2013: $2.4 billion
Change From Same Period Last Year: +$26 million

Peak Ofc 3
No. 2: San Francisco-Oakland-Fremont, Calif.
Construction Starts Through Oct. 2013: $1.1 billion
Change From Same Period Last Year: +$278 million

No. 3: Dallas-Fort Worth-Arlington, Texas
Construction Starts Through Oct. 2013: $1.06 billion
Change From Same Period Last Year: +$117 million



Peak Ofc 5
No. 4: Washington-Arlington-Alexandria, DC-VA-MD-WV
Construction Starts Through Oct. 2013: $1.046 billion
Change From Same Period Last Year: +$4 million

No. 5: Baltimore-Towson, MD
Construction Starts Through Oct. 2013: $1.043 billion
Change From Same Period Last Year: +$403 million


Peak Ofc 7
No. 6: Des Moines, Iowa
Construction Starts Through Oct. 2013: $706 million
Change From Same Period Last Year: +$481 million

Peak Ofc 8
No. 7: Boston-Cambridge-Quincy, MA-NH
Construction Starts Through Oct. 2013: $701 million
Change From Same Period Last Year: +$15 million

Peak Ofc 9
No. 8: Houston-Baytown-Sugar Land, Texas
Construction Starts Through Oct. 2013: $540 million
Change From Same Period Last Year: -$34 million

Peak Ofc 10
No. 9: Seattle-Tacoma-Bellevue, WA
Construction Starts Through Oct. 2013: $488 million
Change From Same Period Last Year: -$136 million

Peak Ofc 11
No. 10: Chicago-Naperville-Joliet, IL-IN-WI
Construction Starts Through Oct. 2013: $302 million
Change From Same Period Last Year: -$29 million

Categories Narrative

My Investment Book is Published!

Earlier this week I sent out a narrative on investors and what kinds of yields they look for when investing. One of the reasons I founded Lee & Associates in 1991 (along with seven other Principals) was to become an investor in Real Estate. Since 1991, I have brokered hundreds of building sales but more importantly, I have been an investor in commercial real estate. As of last month, my first book—How to Win in Commercial Real Estate Investing—is now published and available to purchase. Amazon (click here to view on Amazon) and a number of other outlets are selling this instant classic! 🙂 See below to read some of the first reviews I have received.  

Almost 16 years ago, I met and became friends with an aspiring author who was selling his book from his car trunk. That book, Rich Dad Poor Dad, has gone on to be the number one selling personal finance book of all time with over 26,000,000 copies sold. Robert and Kim Kiyosaki have been my partners in a number of my investments over the years. How to Win In Commercial Real Estate Investing is the first book published in the Rich Dad Library Series with Robert writing the foreword.  

I wrote this book for beginning investors who are thinking about investing and are stymied by the daunting task of finding, evaluating and purchasing a commercial property. My second commercial real estate book, The Art of Leasing, has also been picked up by Rich Dad Library and will be out at the end of the year.  
If you are interested, pick up a copy.

Thank you.


How to Win Front and Back Cover



5.0 out of 5 stars A Substantive, Goal Oriented, and Entertaining Book for the New Investor, April 11, 2014
This review is from: How To Win In Commercial Real Estate Investing: Find, Evaluate & Purchase Your First Commercial Property – in 9 Weeks Or Less (Rich Dad Library) (Paperback)
Craig is the real deal; A guy who has been in the trenches of real estate deals across the nation and truly a winner at everything he does. He takes a highly intentional approach to commercial real estate in this fun to read book. There are powerful examples, checklists and tips to help the new investor to be accountable. This is a great book for any new investor looking to ramp-up their first deal with confidence.
5.0 out of 5 stars Wish this book had been out in 1978, April 9, 2014
This review is from: How To Win In Commercial Real Estate Investing: Find, Evaluate & Purchase Your First Commercial Property – in 9 Weeks Or Less (Rich Dad Library) (Paperback)
This is a very clear, accurate and useful guide to commercial property investment. I have been an investment broker for over 12 years, then national director of investment sales for a national firm and finally sole shareholder of a commercial real estate investment firm with over $1.3 billion in acquisitions and development. This work is the best I’ve come across in all these years in the business. I bought a copy for my oldest son because I think it will give him a strong basis for his own portfolio growth. Wonderful work!
5.0 out of 5 stars Best Commercial Real Estate Investment Bible, April 11, 2014
This review is from: How To Win In Commercial Real Estate Investing: Find, Evaluate & Purchase Your First Commercial Property – in 9 Weeks Or Less (Rich Dad Library) (Paperback)
This is a concise, easy to read and understand, but more important Coppola’s book will help you if this is your first deal or your next deal, He clearly writes this book from the position of having been there and done that with a great deal of success . A must to buy and A Must to read if you want help in winning in the this very complicated game of Commercial Real Estate Investing Glad he took his time to share this Knowledge . Top Notch..