| By Sharon Simonson |
Even in markets like San Francisco and the larger Bay Area, property investors counting on strong recovery in traditional office-using sectors are likely to be sorely disappointed, according to a new report and its author, a senior economist at the UCLA Ziman Center for Real Estate.
Nationally, all employment is projected to return to its 2007 levels at the end of 2014, said David Shulman. But the financial services sector, which includes activities such as banking and money management as well as the real estate and insurance industries, won’t return to 2007 levels until much later—2016, he said.
Growth in financial services will be accelerated in markets like San Francisco and the Silicon Valley under the rising-tide-lifts-all-boats logic, but it will still be slow. “I think the law business is shrinking overall and restructuring right now,” said Shulman. “You need lawyers, but there is a lot going on. Space requirements for law firms are shrinking. You don’t need libraries any more or credenzas—all of the files are in the cloud.”
The financial services sector “will be a different business going forward,” he added.
In an analysis of long-term trends affecting the office sector released Dec. 18 by the Ziman Center and the UCLA Anderson Forecast, the economist concludes that the basic rules have changed for financial services. That in turn is also depressing demand for legal services, which have expanded alongside the financial sector. “Weighed down by increased regulation and pressures to consolidate, the financial services industry appears to have lost the dynamism it had for the 25 years leading up to the crash of 2008,” the economist wrote in “An Uneasy Look at Office Space Demand.”
Taken together the legal and financial services industries employ about the same number of workers as they did a decade ago. They have lost 545,000 jobs in the last five years. With the loss of another 113,00 jobs in architecture and engineering in the same five years, even the huge gains in software design (225,000 new jobs) and management and technology consulting (159,000 new jobs)—seen full force in the Bay Area—have not been able to make up.
Office-intensive industries in the United States have lost 245,000 jobs in the last five years, according to the UCLA report. In comparison, they gained 1.5 million jobs in the five years before. “The only place we are seeing job growth [in the office-using industries] is technology,” Shulman said.