Kaplan: Obamacare dims outlook for suburban office space
Unless you live under a rock, you have no doubt heard about the launch of Obamacare earlier this month.
It turns out that in spite of what President Barack Obama told us early on in the selling of the Affordable Care Act, it is not so affordable.
Growing up in the 1960s during the Vietnam era, I was subject to the draft. There was a lottery system based on date of birth. I remember waiting for the letter in the mail telling me I had to come down to the local Army base to be processed.
That experience reminds me of a recent, similar letter I got in the mail. This time it wasn’t from the Army. It was from my insurance company, stating that my Blue Cross Blue Shield Health Insurance Plan was no longer going to be available to me. How could this be? The president said we could keep our current plan if we so chose. After calling my insurance broker in a panic, I got the “good news.” I could get a different plan from Blue Cross Blue Shield, but the cheapest rate would be 50 percent more than my current rate. How could that be? The president said that my rates would go down. Did you get your letter yet? How does it feel to be lied to by your president?
I almost forgot, this is a column about commercial real estate and it is my hope to relate Obamacare to the commercial office market. Obamacare has been called a “jobs killer” by many of its opponents. It forces employers to avoid hiring a 50th employee because that’s what kicks in the requirement to provide expensive health insurance to all their employees. The other aspect of this train wreck of a law is it forces employers to give health insurance to employees who work more than 30 hours a week. So employers are cutting back full-time employees to part time to avoid the hefty cost of being forced to pay for all full-time employees’ health insurance. When you get your hours cut by 25 percent, your take-home pay gets cut 25 percent, and that hurts.
The suburban office market has been hit hard by the economic recession. According to a recent Chicagorealestatedaily.com article, the last time the office vacancy rate in suburban Chicago was below 20 percent was the second quarter of 2007, before the recession began. The vacancy rate now is hovering short of 25 percent, meaning nearly one out of every four square feet of office space is vacant.
My office clients are all over my case wondering how far they must drop their asking rents in order to fill up their vacant office space. The answer, short of giving away the store for free, is a four-letter word “jobs.”
As of August, about 11.3 million Americans remained unemployed, according to CNN Money article published Oct. 3. Political uncertainty, said Mark Zandi, chief economist for Moody’s Analytics, is the reason for the loss of 1 million jobs over the past few years. Obamacare with all its nuances, quirky requirements and oppressive taxes is a large part of that uncertainty.
Here’s the rub: Office space is needed by businesses when they hire employees who produce a product or service. Someone needs to be hired before they become an employee who physically takes up office space. If there are no jobs, there is no net new employees and the inventory of office space remains high.
As much as I would like to predict a different outcome in the near future, it appears that the office market is going to be sluggish for the foreseeable future. Obamacare is clearly a drag on the office market and the prospect of this repressive law being repealed is looking dim.
The good news in all this is that if, by chance, you need some office space, you can get a really good deal right about now.
• Bruce Kaplan is a senior broker associate with Premier Commercial Realty in Lake in the Hills. Reach him at email@example.com or www.profit-success.net.