CALABASAS, CA—As job creation ticks steadily along, commercial real estate has been seeing gains, as Marcus & Millichap has noted in recent editions of its Research Brief blog series. Two weeks ago, MMI noted that signs are pointing to robust growth in consumer spending; this week the spotlight is on hiring gains as they pertain to improvements in industrial and office performance.
“Last month’s continuation of the strong hiring trends recorded in the preceding quarter occurred amid higher risk stemming from tensions in the Middle East and Ukraine, and weakening global equity markets,” writes Hessam Nadji, managing director of research and advisory services at MMI. However, he adds, “several economic indicators, including a strong initial reading of second quarter GDP, point to a US economy that continues to generate new business opportunities for US companies. Accordingly, hiring will remain steady over the near term, barring an unanticipated shock to the economy.”
During the month of July, he notes, all 10 private-employment sectors added jobs, led by the office-using sectors of professional and business services. Construction, too, added 22,000 jobs thanks to a pickup in multifamily development, although “subdued building in other commercial property sectors leaves construction payrolls nearly 1.7 million positions short of the previous peak,” Nadji observes.
Last month, Nadji noted that with a big assist from the growth in online sales, “the industrial market is performing well as retailers position fulfillment centers closer to population centers. Amazon, in particular, is collecting sales tax in more than 20 states and rapidly expanding to compete on timeliness in areas where the pricing competitive edge has eroded. Overall, industrial vacancy will decline to 7.1% this year, nearly 100 basis points below the pre-recession rate.” The “muted” pace of construction in the sector is a factor, Nadji writes in the newest blog posting.
This month, Nadji further ties the uptick in industrial to job growth. “Increased merchandise inventory passing through warehouses and distribution buildings supported additional hiring for warehouse positions,” he writes. “Year to date, more than 19,000 posts were created, far outpacing the less than 3,000 jobs added in the corresponding period last year. The need to expand staffing underlines the improving operations and near-term prospects for the industrial property sector.”
Outside the warehouse environment, writes Nadji, “Growth in employment sectors with significant office-using functions, including professional and business services, and financial activities, is driving a broad-based improvement in operations in the US office sector.” For the first six months of 2014, he observes, tenant expansions drove the national vacancy rate 30 bps lower to 15.6%.
Going forward, Nadji writes, “Continued employment growth will encourage businesses to expand footprints, boosting space demand through the remainder of the year while construction remains limited in most markets. As a result, the national office vacancy will tighten further to 15.3%” by year’s end.