Posted by: BayAreaComRE | January 6, 2010

It’s the JOBS, stupid

Bill Clinton’s famous quote coined during the 1992 election, ‘it’s the economy, stupid’, can be ammended to reflect the current economic paradox…the economy keeps getting better (S&P up 26% in 2009) but jobs have yet to see improvement…clearly, ‘it’s the jobs, stupid’.

We have seen the majority of companies in San Francisco thinning their space, consolidating their workforce and downsizing. The unemployment in San Francisco is 12.3% leading to negative absorption. Some estimate the amount of excess space comes close to 20%, which bodes poorly for 2010 absorption numbers as leases roll over.

“We’ve never had this profitable a business cycle, while not hiring people and did not spend on capital improvements” said Bob Bauer, principal at Global Investors on a cnbc roundtable (view full video here) If companies are making more profits, what will provoke them to hire more people.

Carol Pepper, Pepper International, mirrors this idea. “Companies have the reason that profitability has been up, too, is that they’ve been able to keep the payrolls lower. And they’ve been able to increase, squeeze productivity a bit.” Read the full Forbes Intelligent Investment typescript here.

According to many economists, we are in a positive feedback look, which means unemployment is peaking. The Forbes panel believes “green” jobs, small business and government funded stimulus will drive the recovery.

Companies who need less space should approach their Landlord early as there is still opportunity to ‘blend and extend’. Additionally, rates are nearing a bottom in the financial district, so companies going leaner will be able to cut costs while improving quality of office space.

The Bay Area boasts a plethora of tech and online gaming, biotech and green tech firms to drive this economy out of a recession.


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