Office construction spending has declined 8% since the peak last September. Reed Construction Data forecasts another 8% decline by the end of this year. Then a 6% rise is projected during 2010 although spending for the full year will only match the 2009 total. The latest (January) report from the Census Bureau shows that public office construction spending is 27% higher than a year ago while private office construction spending is 10% below a year earlier. Public facility managers are spending the taxes collected in the 2003-07 economic boom while private office developers are looking ahead and anticipate further weakening in occupancy and rental rates for another year.

The value of private office project starts in January and February is about 10% below the monthly average for last year but has jumped 16% above the 4th quarter total for office starts which was shocked lower by financing difficulties. Public office starts peaked in the first half of 2008 then dropped 50% and remained at that reduced level for eight months. Neither the financial crisis nor the recession it set off have caused a decline in starts but a modest negative impact is still expected.

The large Washington and New York City office markets have the lowest vacancy rates, estimated at 12.5% by Property & Portfolio Research. The Washington market will withstand the recession better. Some economic stimulus funds are allocated directly to Washington office market. Federal space needs will increase during the recession to accommodate the many tens of thousands of added staff authorized in the stimulus plan. By contrast, New York City is just beginning a long period of securities market layoffs.

Office Construction Spending

Source: Census Bureau; Forecast: Reed Construction Data