m-ncppc research & technology center annual update 2004 economic forces that shape montgomery...

M-NCPPC Research & Technology Center

Annual Update 2004Annual Update 2004

Economic Forces That Shape Montgomery County


2004 Conclusions• National downturn felt in local job market

between 2nd quarters of 2002 and 2003.• Jobs: private sector up slightly, but mostly

low- and mid-wage industries.• Federal impact: leasing & employment

outlook still strong• Commercial market: “short, mild” recession

longer than expected.• Housing market: price increases accelerate

as affordability suffers.


Pluses & Minuses

+ Jobs: private sector adds some jobs during depth of recession, second half of 2003 looks better, unemployment rate still low

+ Federal government retains strong role as employer and tenant

+ County still in good position to weather commercial space recession

+ Housing market still extremely strong


Pluses & Minuses

- Jobs declined in second quarter. Losses felt disproportionately in technology and other high-wage industries

- Commercial construction: exiting short, mild recession phase; vacancy rates are up

- Housing affordability worsens.


Job Growth Job Growth PerformancePerformance

2nd Quarter 2002 to 2nd Quarter 2003


Job growth themes• The number of jobs increased by 1,921 to

452,169

• Biotech bright spot among tech sectors.– Aerospace: down 17%– Biotechnology: up 5%– Infotech & telecom (infocom): down 3%– High tech manufacturing: down 11%

• Higher wage industries lost jobs.

• Third quarter preview: jobs up 384 over previous year.


Total jobs grew by about 1,900

-20,000

-15,000

-10,000

-5,000

0

5,000

10,000

15,000

20,000

25,00019

91

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Between the second quarters of 2002 and 2003, Montgomery County added 1,921 jobs, or 0.4 percent.

Second quarter figures (change from previous year)

Source: RESI compilation of DLLR data


Tech jobs losses continue locally and nationally

90

95

100

105

110

115

120

125

130

135

1988

Q1

1988

Q4

1989

Q3

1990

Q2

1991

Q1

1991

Q4

1992

Q3

1993

Q2

1994

Q1

1994

Q4

1995

Q3

1996

Q2

1997

Q1

1997

Q4

1998

Q3

1999

Q2

2000

Q1

2000

Q4

2001

Q3

2002

Q2

2003

Q1

There are 51,000 high tech jobs in Montgomery County.

United States

Maryland

Montgomery Co.

Ind

e x:

1 99 0

Q1 =

1 00

Source: RESI compilation of DLLR data (2003Q2)


Aerospace jobs drop sharply

707580859095

100105110115

1988

Q119

88Q4

1989

Q319

90Q2

1991

Q119

91Q4

1992

Q319

93Q2

1994

Q119

94Q4

1995

Q319

96Q2

1997

Q119

97Q4

1998

Q319

99Q2

2000

Q120

00Q4

2001

Q320

02Q2

2003

Q1There are 15,000 aerospace industry jobs in Montgomery County.

United StatesMaryland

Montgomery Co.Ind

e x:

1 99 0

Q1 =

1 00



Biotech grows 5%

100110120130140150160170180190200

1988

Q119

88Q4

1989

Q319

90Q2

1991

Q119

91Q4

1992

Q319

93Q2

1994

Q119

94Q4

1995

Q319

96Q2

1997

Q119

97Q4

1998

Q319

99Q2

2000

Q120

00Q4

2001

Q320

02Q2

2003

Q1There are 8,500 biotech industry jobs in Montgomery County.

Ind

e x:

1 99 0

Q1 =

1 00

United States

Maryland

Montgomery Co.Source: RESI compilation of DLLR data (2003Q2)


County infocom jobs down 3%

80

90

100

110

120

130

140

150

160

1988

Q119

88Q4

1989

Q319

90Q2

1991

Q119

91Q4

1992

Q319

93Q2

1994

Q119

94Q4

1995

Q319

96Q2

1997

Q119

97Q4

1998

Q319

99Q2

2000

Q120

00Q4

2001

Q320

02Q2

2003

Q1

There are 19,500 information technology and telecommunications industry jobs in Montgomery County.

United StatesMarylandMontgomery Co.In

de x

: 1 9

9 0Q

1 =1 0

0



County has 1,100 fewer high tech manufacturing jobs

60

70

80

90

100

110

120

1988

Q119

88Q4

1989

Q319

90Q2

1991

Q119

91Q4

1992

Q319

93Q2

1994

Q119

94Q4

1995

Q319

96Q2

1997

Q119

97Q4

1998

Q319

99Q2

2000

Q120

00Q4

2001

Q320

02Q2

2003

Q1There are 8,700 high tech manufacturing jobs in Montgomery County.

Ind

e x:

1 99 0

Q1 =

1 00

United StatesMaryland

Montgomery Co.



Construction jobs hold steady

60

70

80

90

100

110

120

130

140

1988

Q119

88Q4

1989

Q319

90Q2

1991

Q119

91Q4

1992

Q319

93Q2

1994

Q119

94Q4

1995

Q319

96Q2

1997

Q119

97Q4

1998

Q319

99Q2

2000

Q120

00Q4

2001

Q320

02Q2

2003

Q1There are 28,700 construction jobs in Montgomery County.

United States

MarylandMontgomery Co.

Ind

e x:

1 99 0

Q1 =

1 00



Wholesale trade: slight decline

60

70

80

90

100

110

120

1988

Q119

88Q4

1989

Q319

90Q2

1991

Q119

91Q4

1992

Q319

93Q2

1994

Q119

94Q4

1995

Q319

96Q2

1997

Q119

97Q4

1998

Q319

99Q2

2000

Q120

00Q4

2001

Q320

02Q2

2003

Q1There are 10,600 wholesale trade jobs in Montgomery County.

Ind

e x:

1 99 0

Q1 =

1 00 United States

Maryland

Montgomery Co.



Retail trade drops 1%

80859095

100105110115120125130

1988

Q119

88Q4

1989

Q319

90Q2

1991

Q119

91Q4

1992

Q319

93Q2

1994

Q119

94Q4

1995

Q319

96Q2

1997

Q119

97Q4

1998

Q319

99Q2

2000

Q120

00Q4

2001

Q320

02Q2

2003

Q1There are 49,500 retail trade jobs in Montgomery County.

United States

Maryland

Montgomery Co.

Ind

e x:

1 99 0

Q1 =

1 00



Business services unchanged

80

100

120

140

160

180

200

220

1988

Q119

88Q4

1989

Q319

90Q2

1991

Q119

91Q4

1992

Q319

93Q2

1994

Q119

94Q4

1995

Q319

96Q2

1997

Q119

97Q4

1998

Q319

99Q2

2000

Q120

00Q4

2001

Q320

02Q2

2003

Q1

There are 94,800 business services jobs in Montgomery County.

United States

MarylandMontgomery Co.

Ind

e x:

1 99 0

Q1 =

1 00



Health services follows US trend

80

90

100

110

120

130

140

150

160

1988

Q119

88Q4

1989

Q319

90Q2

1991

Q119

91Q4

1992

Q319

93Q2

1994

Q119

94Q4

1995

Q319

96Q2

1997

Q119

97Q4

1998

Q319

99Q2

2000

Q120

00Q4

2001

Q320

02Q2

2003

Q1

There are 38,500 health services jobs in Montgomery County.

United States

Maryland

Montgomery Co.

Ind

e x:

1 99 0

Q1 =

1 00



90

100

110

120

130

140

150

160

170

1988

Q119

88Q4

1989

Q319

90Q2

1991

Q119

91Q4

1992

Q319

93Q2

1994

Q119

94Q4

1995

Q319

96Q2

1997

Q119

97Q4

1998

Q319

99Q2

2000

Q120

00Q4

2001

Q320

02Q2

2003

Q1

There are 21,900 engineering & management services jobs in Montgomery County.

United States

Maryland

Montgomery Co.

Engineering & management services down 7.4%

Ind

e x:

1 99 0

Q1 =

1 00



95

100

105

110

115

120

125

130

1988

Q1

1988

Q4

1989

Q3

1990

Q2

1993

Q3

1994

Q2

1995

Q1

1995

Q4

1996

Q3

1997

Q2

1998

Q1

1998

Q4

1999

Q3

2000

Q2

2001

Q1

2001

Q4

2002

Q3

2003

Q2

There are 11,700 real estate jobs in Montgomery County.

United States

Maryland

Montgomery Co.

Real estate jobs climb 3%

Ind

e x:

1 98 8

Q1 =

1 00



How well do the new jobs pay?

• High: Industries with jobs that pay an average of $50,000

• Medium: Industries with jobs that pay an average of $30,000 to $49,999

• Low: Industries with jobs that pay an average of less than $30,000

We track job growth by average salary to show how well new jobs are paying:


80

85

90

95

100

105

110

115

120

125

130

There are 77,200 jobs in high-wage industries, 195,800 jobs in medium-wage industries, and 133,000 jobs in low-wage industries in Montgomery County.

High: -1.4%

Middle: 2.1%

Low: 1.1%

Middle-wage industries are adding more jobs


Ind

e x:

1 98 8

Q1 =

1 00


Regional statistics show growth in second half of 2003

-40

-20

0

20

40

60

80

100At-place employment (change from previous year)

Source: BLS, DLLR

20022001 2003

Washington MSA

Montgomery Co.


Jobless rate back under 3%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

There are 13,000 unemployed persons in Montgomery County.

Jan 1988: 2.6%

June 1992: 3.9%

Jan 2003: 2.6%

Source: MD DLLR


TCA caseload rises slightly

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

There are 2,693 recipients of temporary cash assistance in Montgomery County.

Jan 1986: 7,783

April 1995: 13,004

Jan 2004: 2,693

Source: MD DLLR


Federal Government Federal Government RoleRole


The federal government is a major component of

Montgomery County’s economy As an employer,

– Almost 60,000 workers are in federal space,– In FY2002, the federal government paid $3.3

billion in wages to jobs in Montgomery County

As a tenant,– The General Services Administration leases 6.9

million square feet of commercial space in the County,

As a purchaser of goods and services,– FY02’s federal procurement was $4.7 billion the

County’s all-time high.


Worth $11.6 billion

FY2002 Procurement FY2002 Wages FY2002 Direct Payments

$4.7 billion

$3.3 billion$2.7 billion

Source: Consolidated Federal Funds Report

• The federal government pumps billions of dollars into the County’s economy.


Workers in federally owned or leased space now exceed

1994 levels

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

1994

1996

1997

1999

2000

2001

2002

2003

2004

2005

2010

2015

Leased

Installation

Workers

By 2015, jobs at installations are expected to grow by 41 percent above current levels. Jobs in leased space are expected to fluctuate between 21,900 and 26,500.

Source: M-NCPPC analysis of US government data


Federal leasing reaches 6.9 million sq. ft.

Source: General Services Administration (GSA)

Square feet

Since 1994, GSA has leased between 6.0 and 6.9 million square feet of commercial space in

Montgomery County

0

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

1984 1989 1994 1996 1997 1999 2000 2002 2003 2004


Health & Human Services leases the most space

Health & Human

Services67%

Dept. of Commerce

17%

Other11%

Nuclear Regulatory

Commission5%


HHS & Commerce account for 84 percent of the County’s federal leased space, 5.7 million

sq. ft. out of a total of 6.9 million sq. ft.


Rockville area home to most federal leased space

Rockville57%

Silver Spring18%

Bethesda15%

Gaithersburg6%

Other4%

GSA leases 3.9 mil. sq. ft. in Rockville (which includes most of North Bethesda), 1.3 mil. sq. ft. in Silver Spring, and 1.1 mil.

sq. ft. in Bethesda.Source: General Services Administration (GSA)


30 percent of GSA’s leased space in Montgomery County is renewable in the next 2 years (2004-2005)

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

1,800,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

sq. ft. of leased space by lease expiration year


Leases for 2.1 million sq. ft. up for renewal in 2004-2005


Where Is the County’s Office Market Headed?


The real estate cycle provides a framework for understanding

Ne

t A

bso

rpti

on

Expansion

(Phase 2)

Recovery

(Phase 1)

Oversupply(Phase 3)

Recession

(Phase 4)

2001

2000

1980,1997

1994

1988

1991

Time

2002

2003

2004


The Washington, DC RegionClass A Office Market


The region’s vacant Class A office space climbs

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

2000 2001 2002 2003 2004

Source: CoStar Group, Property Professional Database, Analytical Search, Historical Trends

1st quarter data, in square feet


4,138,0484,741,295

13,828,99413,380,732

4,350,8783,609,3720

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

1st Qtr 2003 1st Qtr 2004

Much of region’s vacant Class A office space is in Northern Virginia


Suburban MarylandSuburban Maryland

Washington, DC

Northern Virginia

Square feet


First quarter 2004 exhibits slowing of Class A office space absorption

DC DCDC

VA

MD

MD

MD

MDMD

DC

DCVA

VA

VA

VA

-500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

2000 2001 2002 2003 2004


1st quarter Class A office space absorption, in square feet


DC asking rents increases, bucking regional trend

$0$5

$10$15

$20$25

$30$35

$40$45

$50

2000 2001 2002 2003 2004


Average asking price for Class A office space – first quarter

Suburban Maryland: $26

Washington, DC: $44

Northern Virginia: $26

Regional average: $30


The Montgomery CountyOffice Market


County’s Class A office space rents steady compared to Fairfax

$0

$5

$10

$15

$20

$25

$30

$35

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004


Montgomery County: $29

Fairfax County: $25

Average rent for Class A office space – first quarter


About 100,000 sf of Class A space absorbed in 1st quarter 2004

-400,000

-200,000

0

200,000

400,000

600,000

800,000

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04


Montgomery County net class A office space absorption, in square feet


2,676,965

3,487,113

28,204,53627,339,60725,728,802

2,945,088

991,0431,111,775

1,022,121

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

2002 2003 2004

Direct vacant

Occupied

Sublet vacant


Total Class A space grows, as does vacant & occupied.


Vacancy rates return to 1995 levels; Class C space has lowest rate

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004


All types


Improving sublet vacancy rates indicates recovery

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Ma

r-9

5

Se

p-9

5

Ma

r-9

6

Se

p-9

6

Ma

r-9

7

Se

p-9

7

Ma

r-9

8

Se

p-9

8

Ma

r-9

9

Se

p-9

9

Ma

r-0

0

Se

p-0

0

Ma

r-0

1

Se

p-0

1

Ma

r-0

2

Se

p-0

2

Ma

r-0

3

Se

p-0

3

Ma

r-0

4

Va

ca

nc

y R

ate

Recovery Expansion

Recession

Recovery?


OversupplyOversupply


Just over 1 million square feet under construction now

0

1

2

3

4

5

6

19

79

19

80

19

81

19

82

19

83

19

84

19

85

19

86

19

87

19

88

19

89

19

90

19

91

19

92

19

93

19

94

19

95

19

96

19

97

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

Montgomery County office space completed per year in millions of square feet

Source: Completions: M-NCPPC Research & Technology Center; under construction and proposed: CoStar Group, Property Professional Database.

2004: Under construction2005: Proposed for completion


Discovery leads major Montgomery County Class A Office completions in 2003

Project Square Ft. Submarket

Discovery Communications 600,000 Silver Spring

Human Genome Sciences 481,871 Germantown

MedImmune Headquarters 210,000 Gaithersburg

Twinbrook Metro Station 185,516 Rockville

Redland Center 142,500 North Rockville

Metro Executive Park 79,000 North Rockville

Campus @ Holy Cross 65,000 Kensington/Wheaton

Palisades of Bethesda 33,000 Bethesda/Chevy Chase

Source: CoStar Group, Property Professional Database, Property Search


I-270 sees several office projects under construction in 2004

Development Square Ft. Submarket Expected Delivery

Research Office Park 30,000 I-270 Corridor March 2004

Wood Glen Park 66,000 Potomac March 2004

Sandy Spring Phase I 30,000 I-270 Corridor June 2004

1405 Research Blvd. 75,999 I-270 Corridor June 2004

Washington Center 151,230 I-270 Corridor June 2004

Shady Grove Life Sciences 115,691 I-270 Corridor July 2004

Market Sq. @ Shady Grove 228,020 I-270 Corridor July 2004

8515 Georgia Avenue 183,000 Silver Spring August 2004

Chevy Chase Center 151,230 Bethesda/ May 2006

Chevy Chase



Development Square Ft. Submarket

Belward II 54,000 I-270 Corridor

Sandy Spring Plaza Phase 2 125,000 Rockville

Rock Spring Park 217,700 Bethesda/Chevy Chase

Rock Spring Center I 300,000 Bethesda/Chevy Chase

FallsGrove Research Center 350,000 I-270 Corridor


2 major Class A office projects proposed for 2005 in Rock Spring Park


Flex space: vacancy rates and rents edge higher

-1.0%

1.0%

3.0%

5.0%

7.0%

9.0%

11.0%

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 $0.00

$2.00

$4.00

$6.00

$8.00

$10.00

$12.00

$14.00

$16.00


RentsVacancy rates


Residential Market Indicators Are Strong


Number of housing sales continues upward trend

9,40310,357

13,088

14,723 14,77915,489 15,372

16,534

1996 1997 1998 1999 2000 2001 2002 2003

Source: MRIS

Number of housing sales


Most single-family homes now cost over $300,000

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

$350,0001987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Median price of single-family home

Source: M-NCPPC Research & Technology Center


Housing units continue to sell quickly

111

5545

29 26 27

1998 1999 2000 2001 2002 2003

Sources: MRIS, COG

Days on the market


Housing is less affordable Low interest rates help, but price hikes dominate.

0

0.2

0.4

0.6

0.8

1

1.2

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

The higher the score, the more affordable thehousing is. A score of 1 means the monthly

cost of buying a home equals 28% of gross income.

Affordability index for existing Montgomery County homes



00.20.40.60.8

11.21.41.61.8

The median income household can afford the median priced townhouse

New Single Family

New Townhouse

Existing Townhouse

Existing Single Family

The higher the score, the more affordable thehousing is. A score of 1 means the monthly

cost of buying a home equals 28% of gross income.


Affordability index


$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2003 brings marked increase in most home prices

Median PricesNew Single Family

New Townhouse

Existing Townhouse


Existing Single Family


0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Mortgage rates continue to fall

30 year fixed effective mortgage interest rate

Trend

Source: Federal Home Loan Bank Board.


Apartment market still tight with vacancy rates steady at 3.8%

4.4% 4.2%3.7%

3.0%2.5%

1.8%

3.7% 3.8%

0%

1%

2%

3%

4%

5%

1996 1997 1998 1999 2000 2001 2002 2003

Source: Montgomery County Office of Landlord-Tenant Affairs

Vacancy rate


Rents continue upward trend

$726

$871$928

$1,030$1,076 $1,111

$300

$600

$900

$1,200

1998 1999 2000 2001 2002 2003

Turnover rents (Unsubsidized)

Monthly rent, in dollars

Source: Montgomery County Office of Landlord-Tenant Affairs


-500

500

1,500

2,500

3,500

4,500

5,500

6,500

7,500

8,50019

88

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

Multi-family units are a larger share of home construction

Housing completions totaled almost 5,500 units for both 2002 and 2003

Housing completions, in units.

Source; M-NCPPC Research & Technology Center

Single-Family Detached

TownhouseMulti-family


Major 2003 completions include:

• Avalon at Grosvenor Station 497

• King Farm 491• Traville East Village 430• Kings Crossing 250• Fallsgrove 223• Clarksburg Town Center 202• Lakelands 175

In unitsSource; M-NCPPC Research & Technology Center


In 2003, multi-family approvals outnumbered single-family units 4-1

Subdivision approvals in 2003 by units. Source; M-NCPPC Research & Technology Center

Multi-family: 4,871 units

Single-family: 1,192 units

m-ncppc research & technology center annual update 2004 economic forces that shape montgomery...

Documents

number of jobs

jobs series

jobs data classification

jobs data limitations

data federal procurement

strong slide

local job market

low federal government