Job Growth Steadies, Boding Well for CRE
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CALABASAS, CA—While questions remain about the quality of the jobs being added, economists at Marcus & Millichap and Cushman & Wakefield both point out that the latest report from the US Department of Labor bodes well for long-term economic growth. That in turn has favorable implications for commercial real estate.
“Supported by positive manufacturing and service-sector activity, the US economy has settled into a steady pace of economic growth with strengthened hiring trends,” writes Hessam Nadji, managing director of research and advisory services at MMI. “Total employment has passed its pre-recession peak, adding back the 8.7 million jobs lost during the recession.” Nine out of 10 private-employer sectors expanded during the month.
At C&W in New York City, chief economist Ken McCarthy notes that the 217,000 jobs added in May means that payrolls have increased by more than 200,000 jobs per month in each of the past four months, “the longest monthly streak with 200,000 or more jobs added since 2000. With this increase, payroll employment, the U.S. has finally recovered from the recession. For the first time since January 2008, employment is at a new all-time high.”
Over the past four months, he adds, employment has increased at an average of 231,000 jobs per month for an annual rate of 2.8 million jobs.
McCarthy describes May’s growth in employment as “broad based across almost every major sector.” There were large increases in professional and business services, up 55,000; education and health, up 63,000; and leisure and hospitality, up 39,000.
There was however, “unusual decline” in the information sector, where employment fell by 5,000 jobs. “This decline was entirely due to a 9,200-person decline in the motion picture and broadcasting industry,” according to McCathy. “Over the past year, employment in this industry has plunged by 15%.”
Conversely, however, office-using employment—the sum of the financial, professional, business services and information sectors—increased by 53,000 jobs, which McCarthy says continues “the healthy growth that has characterized these sectors throughout the recovery.” In other sectors related to CRE, retail employment climbed 12,500 jobs and distribution-related employment rose by 26,300 jobs.
In thelong term, Nadji writes, “Growth in professional and business services and other employment sectors with significant office-using functions are laying the foundation for a quicker pace of recovery in the national office sector. Tenants expanded into an additional 17.6 million square feet of office space in the first quarter this year, trimming vacancy 10 basis points to 15.9%.”
Meanwhile, speculative construction in the office sector remains “minimal,” Nadji writes. This will contribute to a 120-bps drop in vacancy this year to 14.8% and support a 3.5% increase in average rents.
That recent job growth will boost the retail sector, as well, by generating more spending at retail establishments for the remainder of 2014 and boosting foot traffic at shopping centers around the country, Nadji writes. During Q1, national retail vacancy slipped to 7.1% and remains on track to decline to 6.% by year’s end. In terms of development, he writes, “retail construction consists of primarily single-tenant concepts and small, heavily pre-leased multi-tenant properties that will not hinder further declines in vacancy.”
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