Real estate houses the economy. This is particularly clear in the case of the office sector, as office-based employment accounts for one-quarter of total private payroll jobs, in sectors including business and finance, law offices, advertising—and real estate leasing and management. There is a direct link between stronger economic growth, job growth, and the demand for office space.
The office market has, however, undergone changes in recent years.
Law offices converted their libraries to electronic documents, reducing their need for physical space. New office layouts with more shared workspaces have resulted in a smaller footprint per employee. Office sharing has changed the composition of office tenants, including many tenants without the long-term leases that used to be standard.
Demand for office space has grown more slowly as a result of these developments. Net absorption has averaged 1% of existing office stock over the past five years, compared to 2.1% annual growth of office-based employment.
But demand has still exceeded new supply; net absorption totaled 67.7 million square feet over the past four quarters, well ahead of the 48.4 million square feet of new office space that has been completed. As a result, vacancy rates have declined and rents are rising.
One-Year Return 8.3%
Three-Year Return 11.2%
Five-Year Return 41.4%
Dividend Yield 3.2%
Market Cap $100.7 billion
FFO (2019:Q2) $1.6 billion
Dividends Paid (2019:Q2) $895 million
(Data as of Sept. 30, 2019)
Source: FTSE, Nareit T-Tracker