DC's Private Sector Bolsters Dragging Labor Market

WASHINGTON, DC—The link between job growth and investment sales in commercial real estate is fairly straightforward: they both tend to rise in tandem. Not so, however, in the District these days where fundamentals appear to be temporarily turned upside down.

This year JLL is predicting that investment sales in the District could go as high as $22.3 billion, compared to last year's $18 billion. Yet job growth in the city is less-than-robust with the unemployment rate ticking down to 7.4% in July from 7.5% the previous month.

There are reasons for that disconnect including DC's vaunted "safe haven" status for institutional investors. However there are signs that local employment is catching up to support this story line about the DC market.

At face value, though, the latest statistics are discouraging.

Jacob Anderson, a research analyst with JLL notes that the bulk of employment growth continues to come from non-office occupying sectors while the government continues to shed jobs, mainly through attrition. This sector 2,600 jobs year over year, he tells GlobeSt.com.

Office leasing, understandably, is slow as well. The Washington region saw gains of only 411,700 square feet in the 2nd quarter according to JLL's Office Insight report for Q2 2014.

The region did swing into positive net absorption this quarter, Scott Homa, Vice President of Mid-Atlantic Research, at JLL, notes, but “government gridlock continues to exert a large influence over federal leasing and contractor demand…"

Both JLL researchers point to the private sector as an emerging saving grace for the District. Homa says that "segmented growth in other industries is helping to offset [the government spending] decline and suggests a favorable outlook for tenants in the region that are not heavily reliant upon government spending.”

As for Anderson, he says the most positive news from the District's most recent employment numbers can be found in the professional and business services sector, which reversed 12 months of net decline and added 1,700 jobs year over year. "While this is only a 0.2 percent increase, it's a swing in the right direction and suggests growing private sector momentum."