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Saturday, June 1, 2013

Post-Sandy economy: Will it contain a business and office boom?

By David Ching

Hurricane Sandy brought much of the northeast to a standstill. Through the horrific events, not only were home owners hit hard, but businesses were as well.  While there is yet a long way to go in the recovery that lies ahead, delving into that with a measuring rod is a helpful way to get an idea on how that recovery may look.

While not an exact science, one of the ways to guage the progress is to see how the market is doing in regards to rebuilding of businesses and replacement of items necessary to get the local economy up and chugging away again. However, the market for business office furniture is global and involves many factors. Let's wade through some of them as we attempt to see into the future.

Hurricane Sandy: Federal rebuilding costs
Hurricane Sandy was followed by an increase in construction
  Source: FEMA Through 04/30/2013

One of the responses on the Magic 8 Ball is "Outlook Good." Economists forecasting the near-term and medium-term future for the industrial office furniture market would likely agree with that assessment.

They might not go as far as "Without a Doubt" or "It is certain," but "Outlook good" or "Signs point to yes" do a fair job capturing the current sentiment concerning future business recovery.

How conclusions are made

This outlook is made after office furniture manufacturers such as Steelcase and Herman Miller experienced flat sales or missed revenue targets in the second half of fiscal year 2013. However, much of that softness can be assigned to specific market conditions that analysts believe will soon improve.

First, Hurricane Sandy caused a short-term sales decline. Those sales are not believed to be lost but only delayed until building and infrastructure repairs can be made in the North Eastern Seaboard where the storm had its greatest impact. In fact, as rebuilding gets into full swing and home insurance claims are settled, it could lead to a sales bubble for all kinds of furniture, including office fixtures.

Unsettled conditions in the European economy have caused the industrial office furniture market there to lag in recent months. While there is no unanimity, many economists see a small "double dip" recession hitting Europe. This may be creating caution among buyers. However, using history as a guide, when buyers delay purchases, it often leads to a significant increase in the furniture market when it looks like the economy is rebounding.

Despite softness in the European market, Herman Miller reported a backlog as it moved into the third quarter of FY 2013 and predicted that the backlog, combined with new orders, would result in significant gains over the final two quarters of the year.

Round and round we go

The business cycle along with events like Hurricane Sandy are causing shorter-term challenges for industrial office furniture manufacturers, but the overall market outlook – going forward to 2020 – indicates continued worldwide growth.

Vacancy rates indicate how high housing demand is
Keeping an eye on occupancy rates and new office construction can help forecast future demand for office furniture. A report prepared by Jones Lang LaSalle shows that the domestic market for office space improved significantly in 2012. Growth rates weren't quite what they were in 2011, yet vacancies declined, rents increased and various rental concessions went down. A Collier forecast of international office space predicts moderate growth as well.

This is very good news for not only the global market. What this translates to in human terms, is that the evidence of furniture sales indicates that business seems to be holding it's own across international borders, even though the ride has been bumpy. The potholes and roadblocks are being navigated and innovation keeps rising to the forefront. Anticipation that this will also be felt in a tangible way in the areas hit by Hurricane Sandy is great.

About the author: David Ching works for EQA Office Furniture, offering nation-wide turnkey solutions to office furniture needs.

Additional reference:

* Image attribution: Stella Blu; CC BY 2.0