Office market dips in 2008, flat through '09
Office construction has declined slightly this year—and further declines are expected over the next year—but there's still a small amount of office development growth left in this building cycle. This growth, however, depends on growth resuming in the domestic economy next year.
The value of office construction starts is up 2.5% year-to-date through July, compared to the same period last year which, after subtracting project cost increases, results in a 3-5% decline. Although July had the lowest starts total in more than two years, the expected trend through 2009 is for little change in the nominal value of starts. The current national market situation is a weak and weakening private sector, starts are off 12.5% year-to-date, and rapid growth in public office starts, up about 100% year-to-date to record high level. Looking ahead, private starts will rise in an improved economy and public starts will decline under pressure from two years of weak tax receipts and plunging budget reserves.
Office construction spending is 15.4% above a year ago, but the expansion in ebbing quickly. Spending gained only 1.6% in the last three months, short of the increase in project costs. Financial offices is the weakest submarket—with more declines ahead, much of it in New York City. Spending for specialized medical buildings, not included by the Census Bureau in the office category, also began to decline early in 2008. According to BD+C, the modest dip in office construction in 2008-09 will be offset by renewed expansion in 2010-11 because the amount of office space completed in the last two years is less than two-thirds of completions at the peak of the last building cycle.