Overview
Demand for office furniture is related to a number of macroeconomic variables, the most important of which is new business formation. In strong economic times, more new businesses are launched and more established businesses expand, while the reverse is true when economic growth lags. Nonresidential construction spending levels are indicative of new business formation or existing business expansion. Other factors affecting demand for office furniture include employment levels, raw material prices, corporate profitability, consumer demand for office furniture, and competition from low-cost imports. Furthermore, the significant market for used and refurbished office furniture also impacts the new office furniture industry. Demand for used and refurbished office furniture is problematic for the producers of new furniture, especially considering the cyclical nature of the industry. Because more businesses tend to fail in a weak economic environment and funnel more furniture into the used furniture segment of the market, office furniture producers suffer from both the economic slowdown and the rising glut of used furniture.
Industry sources report the surge in office development is ebbing, but office construction spending is still expected to expand 12% in both 2008 and 2009, on top of 19% gains experienced in the previous two years. However, these estimates seem very optimistic because new office supply now matches office space demand, keeping the national vacancy rate at 14.8%.
While the value of office construction starts was up 27% year-to-date through October 2007, monthly starts during the last four months have fallen below the late 2006/early 2007 peak. Rapid expansion of office-based industries, especially consulting, software, accounting, and insurance, is fueling the rising demand for office space. The pipeline of planned office projects is stuffed with the value of pending projects, triple the amount since the last building cycle bottomed out four years ago. An increasing share of these projects, however, will be substantially delayed or remain un-built as the market appears to trend towards imbalance.
Modular office systems are a popular and effective means of optimizing expensive office space and creating a productive work environment. These systems are very expensive when new and regardless of how "standard" the configuration and colors, are very difficult to sell on the secondary market.
Vacancy Rates (reported Q307)
Highest office vacancy rates:
Atlanta 21.5%
Dallas 21.0%
Detroit 19.9%
Cleveland 19.1%
Columbus 18.5%
Lowest office vacancy rates:
Honolulu 8.2%
New York 10.1%
New Orleans 11.4%
Washington, D.C. 11.5%
Salt Lake City 11.7%
Industry Condition – Average
Key Industry Indicators
- Nonresidential Construction Spending
In March 2008, the value of private nonresidential construction put in place was 1.3% higher than the previous month and 11.8% higher than one year earlier.
- GDP
In the first quarter of 2008, advance estimates showed the real gross domestic product increasing at an annual rate of 0.6%. This was consistent with increases seem in the fourth quarter of 2007.
- Employment Levels
In April 2008, the economy lost 189,000 jobs, and the unemployment rate stood at 5.0%, but job creation was seen in some sectors. Preliminary employment data for April indicates that there were 90,000 service-providing jobs created from March to April.
- Industry Reported Gross Profit
New Equipment Demand
- Modular systems account for approximately one third of all office furniture sales
- 29% Panel and Modular Systems
- 26% Seating
- 22% Storage Units and Filing
- 23% Other
Overview
Even under the best of circumstances, used modular office furniture is difficult to sell on the secondary market. Selling in bulk quantities in a short period of time usually involves luck and requires the involvement of dealers, interior designers, and the original equipment manufacturer. Since these systems are time consuming to dismantle and move, every attempt should be made to find end users who are in the market, can see the systems installed, and will remove the furniture at their expense. Warehousing office systems is costly and often very detrimental to the net value realized.
Used Equipment Values – Average
- Supply of used equipment – Stable
- Demand for used equipment – Stable
Secondary Market Values
- It is generally observed that:
- 1- to 2-year old modular office systems sell for approximately 20% to 25% of cost
- The recovery on older systems or furniture that is stored can be 0% to 15%
Factors Influencing Value & Marketability
- Manufacturer
- Design
- Quantity
- Age and condition
Valuation Monitor
AccuVal routinely provides appraisals of
Wood Products including modular office furniture constructed with wood, steel, plastic and plastic laminates.
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