Who Will Fill Your Space: Surprising Facts about U.S. Jobs

Referring to recently revised GDP (gross domestic product) data from the BEA (Bureau of Economic Advisors), Fuller explains, "The Recession was much worse than had originally been reported. We went into the hole faster. Not necessarily sooner, but faster. For example, previously 2008 was thought to be at 0% growth; now we realize that it was negative. The GDP loss was initially estimated at 2.6%, but actually it was 3.5%.

And the effects continue. "With the revision we haven't replaced all of the GDP. We are not in an expansion; we are in a recovery."

But there are jobs available out there - 3.2 million vacant jobs in the United States today. That number has gone up in the last month by 100K. Vacancies are growing, and yet unemployment persists, because of a growing mismatch between who's unemployed and where the jobs are going.

Some sectors of the economy - Health and Education (doesn't include public school teachers) -- have remained strong throughout the Recession, growing every month. This growth is driven by the hourglass demographic shape of the U.S. population - aging Baby Boomers at the top, and an almost equally large cohort of Gen Y at the bottom. Education industries will grow to provide continuing education and retraining to middle-aged workers and initial education of the 20-something beginning workers, some of whom will go into office buildings.

Demand for healthcare workers and space will continue to grow, although healthcare reform may have an effect, as yet unknown. But not all forms of healthcare. "You have to have an understanding of what the targets are: medical office buildings and outpatient, rather than general care hospitals. And middle-range care facilities like rehab centers, nursing homes, Alzheimer's units and care for the aging."

Another opportunity lies with community colleges, which are under tremendous pressure to expand. Fuller advises developers to learn how to create public-private partnerships with them. "The demand is there - look to public universities for models on how to work with education providers. A similar situation exists with local and state governments. They don't want to increase their bonding and they are looking for ways to shift the debt accounting. The same PPP model works for any revenue producing facility [like parking garages]." Be proactive: "You certainly don't want to wait for them to come to you."

Strong demand also continues for Multifamily development. "The really smart guys have different mixes of units for different areas. Downtown, put up studio and one bedrooms. Suburbs, bigger units. A big trend is that people don't have roommates any more. They haven't shared rooms as a kid or even in college."

Looking ahead, "Build it with condomization in mind, in case the condo market comes back as your project is coming out of the ground. Go with gas in case you need to sell it as a condo. Younger people will want to stay closer to the city, and choose a condo instead of a house farther out."

And Fuller advises, "Keep the immigrant population in mind, and offer different designs, to accommodate extended family. In the Washington, DC, area, immigrants are 50 percent of our population growth, and have been for many years now."

Here Come the Knowledge Workers

The Professional and Business Workers sector of the economy is growing. These knowledge workers tend to be college educated and have above-average salaries. This office dwelling group includes consulting companies like BoozAllen, sales offices, law firms, accounting/management services and IT workers. "It's hard to see [the growth in use of office space] because companies laid workers off, but already had existing extra space, which they are re-filling. The Fortune 500 companies are all growing. They don't have to hire lots of workers. There are lots of companies that are hiring just a few each."

But a hiring challenge looms on the horizon. By 2020 when the majority of Baby Boomers have retired and Gen Y is not yet fully integrated into the workforce, "Employers will have an almost impossible time finding the workers to fill the jobs across all sectors, from IT to construction."

The United States will experience a shortage of qualified workers. Employers will try to accommodate the older worker, who doesn't want to work 40 hours a week, or come into the office every day. This so-called "encore generation" of 60-70 year-olds doesn't need the fringe benefits, and they could be great mentors. The types of jobs they can do will accommodate teleworking. For example, a senior partner in a law firm will be of counsel -- from home until deposition day."

This trend may put additional downward pressure on the need for office space, which has decreased from 220-230 square foot per worker to 190 sf today. Most of the change reflects less common space, such as narrower hallways and smaller conference spaces. More efficient furniture systems have also contributed to this decline in space needs.

The Cyclical Industry Sectors

Real estate is a classic example of a cyclical industry. Construction lags in a recession going down, because buildings have to be finished. It lags on the up too, because it takes time to get buildings going again. Residential direct investment was negative last year and this year, caused by an increasing number of households living under the same roof and a large increase in the number of renters - coupled with an overhang of supply and foreclosures, making it cheaper to use what exists than to build new.

But there's help on the horizon in the form of pent-up demand for residential! The fence-sitting residential buyers who currently have no sense of urgency, will see interest rates begin to inch up. "At some point, they will have a child and they won't fit in that apartment anymore." In 2014-2016, we expect another housing boom.

Fuller predicts, "In 2012, commercial real estate is expected to start growing a bit. There used to be a full year of difference between cycles in residential and commercial real estate."

Retail: Real Time Economy

"When the economy stalls, people stop making discretionary purchases. Grocery stores do the best; card stores do the worst… This also affects the people we pay to do stuff for us - the barber shop, yard services, 'somewhat' luxury services. Dish and DirectTV are losing customers." But, as Fuller notes, "We get our hair cut less often. If 100 million people do it, it costs jobs…. Financial corrections in the households are good for the economy long-term, but not right now. This affects shopping centers, because many of those services are located there."

Belt-tightening loosens faster for the top one-third of the population. In areas that have created better paying jobs, retail came right back. "The top one-third are doing a lot better and have more money to spend on other things. Others have cut back all luxuries, only buying the basics, down in quality and quantity, even in the basics. Buying more cereals instead of meat."

"The emerging retail model are the stores that offer everything from groceries to snow tires" - Costco, Super WalMart and increasingly, Target. "These broad-based retailers are putting pressure on lower-end specialty stores. You give up brand for price if you are pushed."

Gone, Maybe Never to Return

While some sectors of the economy have experienced cyclical changes, others, like manufacturing, have been laid low by "structural" changes. According to Fuller, for the past 10 ½ years we have lost manufacturing jobs, and during the Recession, this accelerated. The decline in manufacturing is structural, not cyclical. "We are maintaining our manufacturing output with fewer workers. If we count jobs we get one answer; if we count profits, we get another answer."

Productivity went up dramatically during the Recession, as employers laid off the least productive workers and less competitive product lines. They retained their best workers, who worked harder for longer hours, to fill the slots of those who were let go. Within the buildings, companies spent money modernizing things like machines and software. When the dust settled, a concentration had taken place in the manufacturing sector. For example, where there were once 50 U.S. auto manufacturers, now there are three.

Strap In. Here Comes Another Pause

Fuller believes that we will have another year and a half until we get back to some positive numbers, and 2014 until any real strength returns. (This assumes no exogenous shocks, Europe survives, the payroll tax credit is extended and the upper end of the Bush tax cuts will expire.) Employers kept their powder dry, GDP is increasing faster than job growth and the top end of the economy is where the productivity is. However, stubbornly high unemployment will persist.

But before we get there, Fuller believes the economy will probably lose its weak momentum and fall back on itself. "It will feel like the first half of the 1990s, when we went nowhere and housing values didn't go up. Think of it as a space between eras…. It will be a slow year and a half, but by 2013 growth should be accelerating….

Use the time to figure things out. Redeploy your resources. Retrain your employees. The leader of the company cannot be just a manager. You have to think of the future, and be ahead of the curve. Even if the curve is flat you still have to be ahead of it…. This isn't going to be a lost decade. It's just going to be a rocky decade. And the smart people will do fine. And the careless people will go out of business."

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