I posted some graphs a few weeks ago that used office vacancy rates as a proxy for white collar employment. At the time I simply compared L.A. and San Francisco to Dallas and Houston. I think it’s an interesting topic though, so I figured that I would follow up with a comparison including more cities.

The graph below shows office vacancy rates since Q1-2005 for several cities that are regional hubs of commerce. I don’t know if you can even call Detroit a regional hub anymore but I did include it as sort of a benchmark of what bad is.

Note that only Los Angeles, Phoenix and Detroit had worse vacancy rates in Q3-2009 than they did in Q1-2005. All of the other cities had actually improved somewhat. The graph above doesn’t tell the whole story though. All cities are in the process of giving back the gains they made in the 2006-2007 time period. The graph below shows this trend.

Detroit made little or no gain when the overall economy was relatively good. Their trend line represents an almost an unbroken increase in vacancy.

The first graph above shows the net change to vacancy since the beginning of 2005. But what cities are doing the best since vacancies hit their trough in Q4-2007? The graph below shows the net change to vacancy for each city since Q4-2007.

• Chicago has held up relatively well. I don’t really have any insight into the relative strength of the Chicago economy. I would be interested to hear from any reader that has any insight into that data point.
• Of the four worst performing cities (Denver, Seattle, Detroit and Phoenix), two have economies that you could call new economies (i.e. very tech heavy) one has a very old economy (auto), and one has an economy that is like a one-legged stool based entirely on the housing market – that’s Phoenix.
• Los Angeles had the fifth worst decline in occupancy among the cities studied, which I would attribute to having an economy that increasingly became based on real estate and imports, both losers in the downturn.
• The increase in vacancy in Phoenix is striking. One thing to consider is that Phoenix delivered about 8 million square feet in space in 2006, 2007 and 2008 combined. So the problem isn’t entirely on the demand side. But Phoenix is like a frontier town. It has sprouted up around one main industry that is sort of like a perpetual motion machine – and has the same theoretic problems as a perpetual motion machine. How can you base your economy on continuing in-migration and the homebuilding industry that accompanies it? In Q3-2006, only two of the cities on the list had lower office vacancy rates than PHX. By Q3-2009, only two cities had higher office vacancy rates. That’s stunning.
• Dallas loves development, all of the time, in any form. Dallas hasn’t had an office vacancy rate below 20% since 1999. But what did Dallas do in 2006, 2007, and 2008 as a response to this +20% vacancy rate? Only deliver 2 million square feet in office completions every single year. You have to love a market that is that gonzo for development. Everything is bigger in Texas – including the appetite for unneeded office space.

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