Small City currently has 1 million square feet of office space, of which 900,000 square feet is occupied by 3,000 employees who are mainly involved in professional services such as finance, insurance, and real estate. Small City’s economy has been fairly strong in recent years, but due to the current global recession, employment growth is expected to be somewhat low over the next few years, with projections of an increase of just 100 additional employees per year for the next three years. The amount of space per employee is expected to remain the same. However, a new 50,000 square-foot office building was started before the recession and its space is expected to become available at the end of the current year (one year from now). No more space is expected to become available after that for quite some time.

a. What is the current occupancy rate for office space in Small City?

b. How much office space will be absorbed each year for the next three years?

c. What will the occupancy rate be at the end of each of the next three years?

d. Based on the above analysis, do you think it is more likely that office rental rates will rise or fall over the next three years?