Office demand reconnects with job growth
Posted By: CoStar on February 17, 2025. For more information, please click here to read the source article.
A clear shift in the dynamics of the office occupancy market occurred in the last quarter of 2024 with move-ins exceeding move-outs by a substantial margin for the first time in two years. With this stabilization of demand comes a renewed focus on job growth within the office-using knowledge and professional services-oriented industries.
Tepid job growth has been a major reason for the office sector’s slow movement toward recovery. After an unprecedented hiring surge in traditional office-using industries in 2021 and early 2022, job growth cooled rapidly, settling in at a year-over-year rate near 0.5% throughout 2024.
A noteworthy exception to this trend of slower job growth among office-using industries has been ambulatory healthcare, an industry that performs much of its work in medical office buildings and employs almost as many people as financial services. This surging sector has been growing at a rate of about 4% since the middle of 2022, bolstering demand for the subset of offices that house healthcare service providers.
These figures are based on the January employment report from the Bureau of Labor Statistics, which included substantial revisions to the initial reports from most of 2024. These revisions are made annually by benchmarking monthly reported employment figures to quarterly job counts that employers in unemployment insurance programs are required to submit.
The benchmark revisions for office-using employment were generally negative. Instead of adding 490,000 jobs in 2024 as originally reported, the office-using industries, including ambulatory healthcare, added only 296,000 jobs. The most notable changes were to payrolls in the professional and business services industries, where the revised numbers showed a decrease of 55,000 jobs rather than an increase of 96,000.
Not all the recent employment news was bad, however. Revisions to November and December jobs figures showed that the traditional office-using industries of information, financial activities, and professional and business services added 49,000 more jobs at the end of the year than previously reported. This is likely one reason for the improvement we reported in office demand at the end of the year.
Looking ahead, the outlook is similarly mixed. In the short term, Oxford Economics forecasts that stimulative fiscal policy will lead to an acceleration in traditional office-using job growth during 2025. This would bring it up to a year-over-year rate of about 1% and into alignment with overall job growth, which it has trailed since early 2023.
In the longer term, however, population demographics are expected to hold job growth well under 1%, far below its rate in recent economic expansions. Once again, ambulatory healthcare projects are a bright spot, with demand for healthcare services keeping job growth relatively strong through 2026 before it also dips below 1%.
These trends have immense implications for the office sector, both for the type and location of buildings the market needs. Rather than providing a strong tailwind to the office recovery, job growth looks more like a gentle breeze, especially after 2025. This could put lasting pressure on the supply side to meet occupier demand for offices of appropriate quality, location and scale.
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