The answer to the timing is based upon some simple mechanics. This recession imparted upon everyone a perception of fear. The peak of that fear was between September and November of 2008. As the 2008 election reached its crisis and conclusion, attention to the media was at its height. According to Nielsen, Americans are spending a record amount of time watching TV and the political conventions, debate, and financial crises were key contributors to this trend in late 2008. CNN constantly showed the Dow Jones Index in a window, even through commercials. Mad Money's Cramer was featured on NBC's Today show urging everyone to sell their stocks. There was no escape from the hype that drove the panic. In that environment, no one, including senior managers, escaped the panic.
If you consider that employment decisions are ultimately controlled at the top of an organization, it is necessary for the senior executives to set the tone for expansion or contraction. It takes time for that mood to effect change in the workplace. First a message must be crafted. Next the message is communicated to the senior executives who are then responsible for disseminating that message and all that it implies to the VPs and line managers all the way through the organization to the administrators. Once the administrators get the message, they then work to make the decisions on cuts and adds. Those are reviewed by Human Resources, Accounting, IT, and everyone else who must be involved in major decisions. After a period of negotiation and wrangling, the decisions are made. Next come the notifications and job postings. Then there are the lags for termination effective dates on the way down, and interviews and starting dates on the way up. Both of these then take some time to reach government statistics. All together it is roughly six months from the time of a CEO's decision until the changes appear in the jobs reports. This means
the peak for layoffs will be between March and May 2009.
The rest of the analysis is easy. If job losses peak in mid 2009, then there is a 6 to 18 month lag for that to affect vacancies. On average, that puts the vacancy peak in mid 2010. We all know that vacancies affect rents. The magnitude and timing of that effect vary by property type, market, vacancy level, and other factors relating to demand, and the perception of future demand. Most agree that office demand will decline. What will be the perception in mid 2010? I will award a slightly used coffee mug for the person that predicts that correctly. Send in your votes now to firstname.lastname@example.org, subject line 'Demand perception forecast for mid 2010.' While waiting for the results, I will assume that the precipitous drop in occupancy will have occurred and that unemployment will be above 10% and hopefully holding steady rather than still rising. Most importantly, average U.S. Office Vacancy will be above 20% for the first time in 25 years and likely higher than seen in the prior peak of 17.8% in 1985. In such an environment, rental rate declines will likely exceed the 20% drops seen in the last two recessions and a 30% decline may be a conservative forecast.