Secondary Office Markets Leading the Way

01/23/2018 | by

Office REITs are closely linked to the health of the macroeconomy, as job growth drives demand for office space. Office REITs in turn contribute to the economy by owning and operating properties that are essential for the American workforce. This symbiosis between office REITs and the national job market has facilitated both steady job growth and also the 7.7 percent total return that office REITs posted in the 12 months through November 2017, following a 13.2 percent return in 2016.

Office-using employment has lately outpaced employment in other industries like manufacturing, construction and retail trade. Total national office-using jobs rose 2.0 percent in the 12 months through November 2017, compared to 1.6 percent growth in total private payrolls. The momentum in office employment bodes well for the office property sector, including office REITs.

Office employment in Gateway cities has lagged secondary cities and other markets, reflecting a temporary lull in specific sectors, for example, financial employment in New York and tech jobs in San Francisco. This soft spot is reversing, however, as hiring in these cities rebounded over the past six months.

Office employment in secondary markets like Seattle, Denver, Dallas and Nashville is rising rapidly, with population growth above the national average, and booming local economies generating strong demand for office space.