It’s been eight years of economic recovery since the Great Recession, and the most recent data from the Bureau of Labor Statistics (BLS) shows continued improvement. But more bodies in the workforce don’t necessarily mean smooth sailing for the office sector in the coming years, industry insiders say.

Unemployment in November declined to 4.6 percent nationally, BLS reported, and total non-farm payroll employment increased by 178,000 positions. Unemployment has held under 5.0 percent since August of this year, and the economy has added between 120,000 and 250,000 each month since June.

How long can such job gains last? It’s forecast that in the next six years, positions will become more difficult to fill for two reasons. The first, not enough workers with skills employers want. The second is more dire: not enough workers in general, according to Alan Pontius, senior vice president and national director of specialty divisions at brokerage firm Marcus & Millichap.

“Although we see a low unemployment rate, there’s one big challenge: there’s a large number of unfilled job postings. It’s a tight employment market—the skills may not be there that are necessary to fill some jobs,” Pontius says.

According to Walter Page, director of research with CoStar Portfolio Strategy, “Nationally, we are running out of employees, especially college-educated ones. In fact, the low rate of unemployment will be a constraint on job growth.”

Property Fundamentals

Currently, the national office market looks strong. In 2016, office space absorption exceeded the delivery of new supply and the national vacancy rate dropped 40 basis points to 14.4 percent, according to Pontius. Similarly, data from real estate services firm CMBS estimates the national vacancy rate for the office market at 13.0 percent. In 2017, vacancy will likely drop another 20 basis points, Pontius notes, and absorption will once again outpace new supply.

Average office rents grew by 1.9 percent year-to-date, according to New York City-based research firm Reis Inc. Growth for the year should “fall just shy” of last year’s increase, which was at 3.0 percent, according to Reis Economist Barbara Byrne Denham.

“There has been a bit of a slowdown in the office market in 2016 in terms of both office employment growth, as well as office rent growth,” she says. Denham notes that out of the 82 metros that Reis tracks, only 40 saw higher year-over-year rent growth in the third quarter of 2016 than at year-end 2015. Of those metros, only 30 experienced higher office employment growth in 2016 than in 2015. In fact, 15 metros have seen office employment declines in 2016, up from five in 2015. Some metros have outperformed, especially the tech hubs on the West Coast, including Oakland, Calif., San Francisco, San Jose and Seattle. Office employment growth in those metros, however, has decelerated somewhat, Denham says.

A tight construction outlook for next year means vacancies will continue to drop, but net absorption is expected to slow through 2020, sources say. CoStar forecasts that net absorption will fall to 38 million sq. ft. in 2020, from 100 million sq. ft. at the peak of the market in 2015. The main drivers behind the slowing absorption rate will be a tight labor market due to a drop off in working-age population, according to Page. In 2000, 2 million people reached working age, he notes. This year, it was only 900,000. By 2022, the figure will drop to 250,000 per year.

“In summary, because we have less bodies coming into the workforce we can’t sustain as much growth moving forward, and that will cause job growth and net absorption of office space to slow,” Page says.