The politicians talk about a “jobless recovery”. But, what is the real effect on the local commercial real estate market?
In the last 5 years, Montgomery County has economically rebounded. Unemployment has dropped from 5.6% to 4.4% and the annual Maryland GDP has increased by over 11.58%. Yet, the commercial real estate market is not benefitting from the overall improvement in the economy.
There are a number of key economic and cultural factors at work. Companies learned during the last steep recession that they could “make due” with less employees, and general concern about the business environment (sequestration, government shut down, lower NIH funding) have resulted in fewer permanent office hires.
Technology and productivity enhancements allow companies to get more done with less staff. And, companies are increasingly catering to employees desire for flexible hours and telecommuting. Young people want mixed-use developments near public transportation i.e. “work, live, play environments”. Montgomery County does not have vibrant urban centers to cater to this community.
As a result of these factors, historical metrics, whereby you could predict net absorption based on job / economic growth, no longer apply.
So, since the official “end of the recession” in June 2009, the commercial office market in suburban Maryland has worsened. Vacancy rates have increased 200 basis points with negative absorption of over 700,000 SF in the last 12 months.