May 10, 2012
- April job additions remained positive, but registered well below the solid performance of the first couple of months of the year as many companies eased the pace of hiring. The recovery will remain choppy with significant headwinds as America’s major trading partner, Europe, faces steep unemployment challenges and what appears to be a spreading second recession. With 20 percent of U.S. exports destined for European markets, the economic troubles overseas, together with heightened oil prices, pose risks to the U.S. economy. Despite these challenges, positive forces, including strong retail sales and record corporate profits, will encourage employers to add jobs in coming months, but the gains may be sporadic.
- April job gains fell short of March’s upwardly revised figures, but hiring totaled 115,000 positions for the month with the private sector adding 130,000 individuals to payrolls. Professional and business services claimed approximately half of the additions with 62,000 positions, but one-third of these positions were temporary. The education and health services sector and the trade, transportation and utilities sector followed with 23,000 and 22,000 additions, respectively. The government shed 15,000 positions last month, the latest reading in a public-sector downsizing that began in May 2009 and has thus far claimed over 700,000 jobs. The reductions appear to be slowing, however, and it is likely the governmental work force will finally stabilize later this year.
- Wholesale and retail trade employment has expanded by 50,000 positions so far this year, largely led by retailers and restaurants. Consumer spending has risen by 1 percent this year, offering businesses sufficient positive momentum to boost staffing levels. The payroll expansion of these businesses illustrate that consumers are emerging from their recession-induced self-imposed austerity. Retailers targeting the two most active market segments—luxury and discount—will continue to lead hiring trends in this arena.
Impact on Commercial Real Estate
- Though the pace of hiring eased in April, total employment has made significant headway with 1.8 million jobs added in the last 12 months. This continued positive, though moderate, employment recovery will boost discretionary income and fuel a 5.2 percent gain in retail spending through 2012. National chains, which are best positioned to expand, will ramp up openings and lead a 50-basis point drop in nationwide retail vacancy to 9.2 percent.
- The recession generated a structural shift in the rent-versus-own equation, with renting emerging as a favorable lifestyle alternative for many. Limited job availability, together with a frequent requirement of relocating, has inspired many to favor the flexibility of renting. This shifting attitude will support demand for apartment units through the remainder of the year, pushing vacancy down by 50 basis points to 4.4 percent by year end. This will support average effective rent gains of 4.8 percent on a year-over-year basis.
The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real estate industry. The Research Brief is published weekly by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
April 10, 2012
- Job creation eased in March, but the monthly employment gain nonetheless capped the best first quarter of job growth in six years. Additions to payrolls confirm that the economic recovery is maintaining momentum, while some of the headwinds to growth appear to be subsiding. Gas prices, while higher than a few months ago, have stabilized in recent weeks while concerns over eurozone financial difficulties have eased for now. April also marks the start of earnings season, and many companies are expected to report moderating profit growth. As much of the gains from cost-cutting measures and increased worker productivity have been wrung out, additional hiring will be required in the months ahead to drive increased profitability in the coming year.
- The private sector added 121,000 workers in March, while government agencies shed a scant 1,000 positions, resulting in a net gain of 120,000 jobs for the month. The economy generated 635,000 jobs in the first quarter, with almost all of them coming from the private sector. Nine of 10 private-employment sectors added workers in the first quarter, led by a gain of 196,000 professional and business services positions. Education and health services added 134,000 jobs, as medical practices added staff to handle increased patient volume. More than 103,000 positions were also created at dining establishments, reflecting the continued loosening of household spending and greater confidence in the employment market. Only the information sector shed jobs from January to March.
- Rising consumption and the ensuing inventory increases underpinned a gain of 25,000 trade, transportation and utilities positions in the first quarter. However, the gain would have been greater if not for contraction in the retail trade segment, where 37,500 positions were lost in the first quarter. The loss of jobs reflects seasonal adjustments and may also count the closure of some Sears stores, and additional losses will be reflected in the coming months. J.C. Penney, for one, will eliminate 600 headquarter positions while Best Buy announced its intention to shutter 50 of its big box retail locations.
Impact on Commercial Real Estate
- A heightened pace of improvement in office property performance will become evident in the in the months ahead as more than 124,000 full-time, office-using positions were added in the first quarter this year, marking the eighth consecutive quarter of expansion. Though absorption has been slow to ramp up as companies remain cautious with office space needs, the national office vacancy ended 2011 at 17.3 percent. As hiring continues over the course of the year, tenant expansions will generate nearly 47 million square feet of net absorption in 2012, slashing 70 basis points from the office vacancy rate.
- The transportation and warehousing segment added more than 34,000 workers in the first quarter, offering a further indication of a recovery in the industrial property sector. Positive net absorption will exceed 45 million square feet of completions in 2012, resulting in a 90-basis-point drop in national industrial vacancy to 11 percent. Asking and effective rents will rise 1.7 percent and 2.0 percent, respectively, during the year, helping to partially erase losses posted in the preceding three years.
The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real estate industry. The Research Brief is published weekly by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
March 19, 2012
- February retail sales posted stronger-than-expected gains, underscoring consumer confidence and resiliency. The pace of spending growth improved from January’s disappointing 0.6 percent, recording the strongest gain in five months and following solid fourth-quarter GDP growth of 3.0 percent. Job growth has surpassed 200,000 for three consecutive months while initial jobless claims for the first week of March ebbed to a four-year low, signaling positive momentum and moderate economic strength. Still, numerous headwinds could constrain trade, spending and the pace of economic growth, most notably mounting tensions in the Middle East creating a spike in oil prices, as well as the cyclical weakness in the European economy.
- Total retail sales increased 1.1 percent for the month of February and 6.5 percent on a year-over-year basis. Excluding motor vehicle and gasoline sales subtracts 100 basis points from growth to a still-strong 5.5 percent. February spending reflects greater dispersion than prior months, with broad-based gains not only in necessities, such as gasoline sales, which climbed 3.3 percent higher for the month, but also in discretionary items in the auto sales and apparel segments, which grew 1.9 percent and 1.8 percent, respectively. Department stores also turned in a surprisingly strong performance, posting a 1.5 percent increase for the month. Housing-related categories have performed well recently, with marked strength in building supply stores, which increased 1.4 percent, although receipts at furniture stores dropped by 1.2 percent following several consecutive months of strong gains.
- In response to softer consumer demand, businesses are scaling back inventory levels. While a reduction in inventories is a drag on GDP, it also can provide fuel for a recovery. When spending begins to gain momentum, businesses will have to crank up production, rather than pull from existing stockpiles of goods to meet the new demand. The industrial sector will be the primary commercial real estate sector to benefit from increased production.
Impact on Commercial Real Estate
- The rise in employment, earnings and hours served to bolster consumer confidence, which clearly catalyzed retail sales performance. Sales receipts for department stores strengthened due to new strategies that included downsized formats, renovations, selective closings and repositioning. Property sector fundamentals exhibited improvement nationally as well. Net absorption totaled 60 million square feet in 2011, nearly double the record-low 35 million square feet completed. The overall vacancy rate declined 30 basis points to 9.7 percent.
- Nationally, asking and effective rents averaged for all retail types remained unchanged, stemming 12 consecutive monthly declines in effective rents. Forward projections call for a further decline in vacancy to 9.2 percent by year end.
- Strength in consumer spending, trade and the manufacturing sectors benefits industrial properties as rising capacity utilization rates and inventory rebuilding stimulate warehouse demand. The nearly 97 million square feet of industrial space absorbed in 2011 represents a 500 percent increase over 2010. Risks of a spike in oil prices and eurozone weakness heighten the prospect of weaker trade volumes, which would attenuate demand and slow expansion. However, vacancy could tighten by 90 basis points to 11.0 percent by year end if the economy continues to expand as forecast.percent this year and will decline to 5 percent in 2012 as minimal development and healthy demand persist.
The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real estate industry. The Research Brief is published weekly by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
March 14, 2012
- Positive hiring trends continued in February with employers adding workers for the 17th consecutive month. Strong private-sector job growth propelled the recovery, encouraging workers to enter the labor force, while the prolonged government employment contraction appears to be coming to an end. The gradual recovery of the domestic economy has built some momentum, but mixed news on the global front has reinforced lingering uncertainty. The recent restructuring of Greek debt temporarily eased eurozone concerns, but Middle East tensions continue to weigh on perception. These factors, together with questions spawned by the election year, will reinforce cautionary tendencies in U.S. corporations, but appear unlikely to derail a sustainable recovery.
- Private-sector employers added 233,000 workers in February, while the government shed 6,000 positions, yielding a net gain of 227,000 jobs last month. In addition, strong positive revisions were made to the December and January employment figures, adding a combined 61,000 jobs for those two months. Last month, professional and business services expanded by 82,000 workers, including 46,000 positions in temporary services, but many of the temporary positions could become permanent as the recovery gains steam. Leisure and hospitality added 44,000 workers, mostly at bars and restaurants, while education and health services created 71,000 new posts. Most of the gain in education and health services occurred in the medical field, where practices added 61,000 positions to support increased patient volume resulting from the restoration of healthcare benefits to the newly employed. Combined, the broad-based hiring offers a generally positive outlook for the employment market, with year-to-date additions totaling 511,000. This strong start to the year could prove the current forecast of 2.2 million hires in 2012 to be a bit conservative.
- The unemployment rate held steady at 8.3 percent last month as nearly one million additional workers have entered the labor force so far this year. Since hiring moved into positive territory 23 months ago, 3.5 million positions have been created, but an additional 5.3 million positions must be filled to restore employment to late 2007 levels.
Impact on Commercial Real Estate
- Ongoing job growth will fuel continued, albeit limited, improvement to the national office sector. The addition of 42,000 full-time, office-using positions last month, and 415,000 jobs over the past year, is enabling employers to backfill unused desks and cubicles that linger as reminders of the recession. New, expanded space needs will continue to emerge as 2012 progresses and generate nearly 47 million square feet of net absorption during the year, reducing nationwide vacancy fall 70 basis points to 16.6 percent.
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Nearly 41,000 positions were added at bars and restaurants last month, raising the number of jobs created over the past year to 305,000. Openings of new restaurants and the addition of breakfast service at many national chains account for a portion of the increase, but many establishments also added staff to handle heavier customer volume. Bars and restaurants generate traffic at shopping centers, which likely contributed to a 30-basis-point decline in national retail vacancy last year. Vacancy will fall another 50 basis points in 2012 to 9.2 percent.
The Research Brief blog from Marcus & Millichap offers timely insight and expertise into the rapidly changing investment real estate industry. The Research Brief is published weekly by top industry professionals, showcasing time-sensitive information and valuable analysis. Add the Research Brief blog to your reading list today.
The information contained herein was obtained from sources deemed reliable. Every effort was made to obtain complete and accurate information; however, no representation, warranty or guarantee to the accuracy, express or implied, is made.
