Future Job Growth in Southern California Is a Question for Property Owners and Investors As Region’s Economy Continues to Improve
LOS ANGELES -- With Southern California’s economy expected to continue improving in 2004, a key question for property owners and investors is the future rate of job growth in the Southland.
That was a question addressed by a panel of real estate experts following presentation of the Southern California Office and Industrial Market Report 2004 at USC’s Lusk Center for Real Estate. The report was presented by Raphael Bostic, Director of the Casden Real Estate Economics Forecast. In addition to Bostic, members of the panel were Robert H. Osbrink, Vice President and Executive Director, Grubb & Ellis; and Larry Kosmont, President and CEO of the Kosmont Companies. The moderator was Stuart Gabriel, Director and Lusk Chair, USC Lusk Center for Real Estate.
Jobs and demand for office space
Jobs are a prime driver of demand for office space, and the Casden Forecast said the Los Angeles County office market should start to recover next year partly because of growth in service employment. During the panel discussion, Bostic said the county’s rate of job growth is expected to range between one and two percent in 2004 and 2005, but the number of new jobs created will far exceed the number added in either Orange County or the Inland Empire. Orange County’s employment is expected to increase about one percent in 2004 and a respectable three percent in 2005. The Inland Empire will have the fastest rate of job growth, or more than four percent in 2004 and more than five percent in 2005.
Southern California’s relatively strong job growth in 2004 will create more demand for office space. But space use is changing in response to changing business needs. “We’re seeing a reconfiguration of office space and a different mix of space,” Osbrink commented. For example, there are more combinations of manufacturing and distribution facilities with minor office space. Companies also are becoming more efficient in use of office space, he noted, citing a technology company that expects a 30% reduction in square foot of space per employee.
California’s loss of manufacturing jobs
While the job picture is improving, most of the job growth in Southern California and statewide is expected to be in services. By contrast, Kosmont said he is preparing a report which finds that California has lost nearly 300,000 manufacturing jobs in the past three years, with no letup in sight. Kosmont is publisher of the Kosmont-Rose Institute Cost of Doing Business Survey, a nationwide report on city and county taxes and incentives.
“We are losing very high-paying manufacturing jobs, including entry level jobs that are particularly important to the Latino community,” said Kosmont, a member of the California State Economic Development Commission. The loss of these high-paying jobs has ripple effects throughout California’s economy, reducing the ability of workers to buy homes or spend on consumer goods.
Part of the job attrition in manufacturing jobs in California – and nationally – is the result of increased productivity. “Another part of the story is that jobs in manufacturing and services continue to move from the U.S. to other countries – more than one million jobs have been lost since the end of the recession,” Gabriel noted.
In addition “California is losing manufacturing jobs to other states,” Kosmont said. Manufacturers are relocating not only to lower cost states but even to higher cost states that are perceived to have friendlier business environments. “Companies won’t entirely walk away from California, the world’s fifth largest economy, but some could wind up maintaining only a limited presence here,” Kosmont observed.
Keeping business and jobs in California
To create a more business friendly climate in California, attract and retain companies, and create jobs, Kosmont said the Schwarzenegger administration is looking at how to reduce worker compensation costs and the liability exposure of small businesses, among other initiatives. A state public/private development corporation to promote job growth is also under consideration. “We need to create an image of California as a business friendly, productive environment, with strong leadership.”
Another issue is that California’s investment in public infrastructure has declined from about 25 cents of every dollar of state spending in the Pat Brown administration four decades ago to about two cents on the dollar currently, Gabriel noted. “Infrastructure investment drives California’s economic growth,” he said.
“The first order of business,” Osbrink said, “is to determine where infrastructure money currently is being spent – we need accountability.” He said this would provide the groundwork for the state to develop long-range plans for infrastructure investment.
In the future, the eastern half of California is expected to attract more business and real estate investment. “In California, the perspective often is between north and south, but the real difference is between east and west,” Kosmont noted. The west, including the coastal region, is rapidly becoming built out, and resistant to further population growth. “Investment will go into the east because that’s where the growth is,” Kosmont said.