Stimulus May Benefit Office Segments

BOSTON-Certain segments among office-using industries, including high-tech, stand to benefit from the federal stimulus package, according to a new assessment that looks at the American Recovery and Reinvestment Act seven months after it was signed into law. The new report is from Boston-based CBRE Econometric Advisors, formerly CBRE Torto Wheaton Research.

The new report, authored by economist Umair Shams, points out that three key subsectors of office users have the potential to gain the most from the stimulus package: architectural and engineering services; computer systems design and services; and management, scientific and technical consulting services. Together these three comprise roughly 17% of national office employment, Shams points out.

The CBRE Econometric Advisors analysis explains that these sectors stand to benefit the most from the American Recovery and Reinvestment Act of 2009 because almost 20% of the $787 billion in funds in the act, or $154 billion, is slated for infrastructure and science- ($111 billion) and energy- ($43 billion) related investments. “The funds, which will stimulate economic growth and update the nation’s aging infrastructure, will also generate demand for high-tech services such as those provided by engineering and architectural firms; both contribute to office-using employment and are therefore demand drivers for space,” the report states.

Although much of the focus for real estate investors with regard to the stimulus plan has been on the Troubled Asset Relief Program and its attempt to revive stalled credit markets, “The potential impact of stimulus spending on office demand should not be overlooked,” the report points out. It cites “hidden gems” in the stimulus package that “may offer some assistance to the much beleaguered real estate market,” and one of those gems is the potential for increased demand among the three office sectors that the report lists as likely to benefit from the stimulus spending.

The report further explains that the ARRA act’s infrastructure component entails spending on transportation projects that focus on building and repairing roads, bridges and mass transit systems, creating the need to hire not only construction workers, but also engineers and architects. The report notes that the ARRA bill’s energy section sets aside money for building a nationwide smart (computerized) electric grid, investing in energy efficiency for state and local governments and loan guarantees for renewable energy projects, which will create additional demand for engineers, software programmers and consultants. “This is good news for markets with an abundant supply of high-tech office workers, as this sector has experienced payroll declines of 1.7% since the peak in 2007,” the report states.

Determining which geographic markets will benefit the most from the stimulus spending appears at first to be difficult, but the report lists and ranks the 10 markets for each of the three office employment categories that stand to benefit most from infrastructure improvement and investment in technology. Among them are Washington, DC, which is an example of a market with a highly educated work force, the report notes. Another mentioned is San Francisco, “with its software- and technology-dominated work force and entrepreneurs also standing to benefit from government expenditures on technology,” according to the report.

Other markets that could enjoy some benefit include Houston,Orange County, San Diego, and San Jose. “Although not significant enough to force a turnaround in market fundamentals, the potential for creating high-tech and engineering jobs in markets traditionally dominated by those sectors should provide some relief to investors there,” the report concludes.