May 6, 2013
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Stronger than anticipated hiring in April, together with sizable upward revisions to the February and March employment figures, have alleviated concerns that sequestration will severely impair the employment market. Although some sectors such as manufacturing and construction have lost a bit of momentum, job creation continues to make headway and intial unemployment claims have fallen to a five-year low, signaling that the job market will make steady, though unremarkable, progress. Still, headwinds such as increased payroll taxes, sequestration and Washington’s ongoing intransigence on fiscal matters will continue to pressure economic growth, weakening the overall employment outlook.
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Private-sector employers added 176,000 positions in April, but this figure was offset by government reductions of 11,000 jobs. Significant revisions to the February and March numbers boosted the year-to-date hiring total to 783,000 jobs, on par with the performance in both 2011 and 2012. The professional and business services and education and health services sectors led the gains last month, but relatively strong consumer spending so far this year helped support the hiring of 29,300 retail workers last month. Further evidence of the vigor of the nation’s hotel sector was evident in the hiring of 45,100 workers in accommodations and food services. Three private-employment sectors shed jobs in April, including construction, where reduced government funding for projects contributed to a loss of 6,000 jobs.
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Roughly 60 percent of the private-sector positions created last month were either temporary or in the retail or leisure and hospitality sectors. Temporary positions pay lower wages and include fewer work hours than full-time jobs, while retail and leisure and hospitality positions tend to pay less than other sectors. The increased incidence of these lower pay scale positions will sustain demand for rental housing and necessity-oriented retailers, such as those found in strip centers and neighborhood centers.
Impact on Commercial Real Estate
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With the addition of 42,200 jobs last month, full-time office-using employment is now less than 2 percent off of its peak level recorded at the start of the recession. Nationwide office vacancy was 16.7 percent at the end of last year, nearly 400 basis points higher than at the start of the recession. Gains in full-time office-using employment have translated into absorption of under-utilized space and limited expansions into larger layouts. As newly hired workers continue to fill empty cubicles and desks during 2013, new space requirements will emerge, supporting an 80-basis point decline in vacancy to 15.9 percent.
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Job growth continues to spark the creation of new rental households and support a vigorous apartment sector nationwide. First quarter vacancy was unchanged at 5.1 percent, but has declined 200 basis points since the economy started to add jobs again in early 2010. Demand growth will outpace an increase in completions this year, reducing the nationwide vacancy rate to the high-5 percent range.
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 18, 2013 – 12:14 am
April 17, 2013
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Restrained discretionary spending likely induced by increased payroll taxes generated weaker than expected retail sales performance in March; a sharp drop off from the solid numbers posted in the prior two months. However, the coinciding downshift in the labor market and decelerating income growth lent little foundational support for consumption. The discretionary sectors most adversely affected in March included auto sales and department stores, while housing-related sectors, such as furniture stores and building materials reported increased sales, likely due to strong gains in the housing market. 
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March retail and food sales totaled $418.3 billion, representing a -0.4 percent decrease from February, but still 2.8 percent above year-ago levels. Core retail sales, excluding autos and gasoline, flattened to -0.1 percent, and remain 2.4 percent higher on an annualized basis. Gasoline stations, electronics and appliance stores, department stores and motor vehicles reported the most significant monthly declines, ranging between -2.2 and -1.6 percent for gasoline and electronics, respectively, to -1.1 and -0.5 percent for department stores and autos, respectively. Non-store retailers and motor vehicles maintain the strongest annualized gains across categories, posting 13.5 and 7.4 percent, respectively. Conversely, department stores and electronics and appliance stores report the largest decline in revenues on an annualized basis of -7.6 and -3.2 percent, respectively.
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Sequestration, higher taxes, an overriding theme of slower demand, and noisy threats from North Korea joined in re-igniting the familiar drumbeat of economic and geo-political uncertainty. However, rising residential construction and home sales, which are critical to the health of the consumer sector and overall economy, supported economic resilience to the persistent headwinds. The Conference Board’s index of leading indicators continues to reflect widespread improvement, notwithstanding weakness in consumer expectations and manufacturing new orders.
Impact on Commercial Real Estate
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The deceleration in industrial production and other economic factors that influence demand for industrial properties present heightened risks for the sector’s near-term performance. Thus far, however, distribution, warehouse and manufacturing space exhibit impressive leasing and rent growth momentum, aided by low levels of supply. Vacancy is forecast to tighten by 80 basis points to 8.6 percent by year end. The long-run strength of e-commerce could contribute significant demand for centrally located distribution and warehouse facilities going forward.
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Demand for retail space remains limited, but has managed to outpace the dearth of new supply, expected to total 55 million square feet by year end. A key factor that will support brick and mortar retail in the coming year is the passage of the Marketplace Fairness Act, which compels states to tax online retailers at a rate comparable to other retailers. This change will level the playing field by eliminating the 5 to 10 percent pricing advantage long held by online stores. Forward projections call for a further decline in vacancy to 8.6 percent by year end and effective rent growth by year end of 2.1 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.
April 5, 2013
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Though job creation remained positive last month, its loss of momentum reiterated weakening performance in both initial unemployment claims and mass layoffs. Employers made only modest additions to payrolls last month, and the slowdown has renewed debate regarding the effects of the sequester, increased payroll taxes, and the Affordable Care Act. The disappointing job numbers also dull some of the luster created by positive housing trends and the strengthened auto sector. Despite a modest decline in the unemployment rate, renewed concerns over the job market will almost certainly encourage the Federal Reserve to maintain its accommodative policies to support economic growth.
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Private sector employers added 95,000 jobs last month, down from the upwardly revised total of 268,000 positions in February. The loss of 7,000 government positions last month yielded a net gain of just 88,000 jobs, the lowest total since last June. The professional and business services sector led the gains, adding 51,000 workers, while education and health services gained 44,000 positions. However, the retail sector shed 24,100 jobs in March, the most significant one-month loss for this sector in more than a year. Although retail sales continue to increase, higher payroll taxes may be eroding shopping sufficiently to force retailers to tighten staffing. Another risk to employment in coming months is the sequester, but the implications of these spending cuts have yet to appear in the jobs data.
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Construction employment emerged as a bright spot in March and throughout the entire first quarter. Building trades added 18,000 positions last month and 91,000 spots in the first three months of 2013, the highest quarterly job growth in seven years. Construction spending continues to rise, as evidenced by new apartment buildings and single-family developments coming out of the ground across the country. Although home building and single-family home sales remain well below levels recorded before the recession, the resurgence of housing could potentially offset weakness in industries dependent on government spending and help drive economic growth this year.
Impact on Commercial Real Estate
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The addition of 504,000 jobs last quarter boosted demand for rental housing and supported tightening concessions. Still, apartment construction is on the upswing as developers seek to capitalize on young households’ preferences for rentals over homeownership. The convergence of rising demand with increased supply will support a national apartment vacancy rate of 5 percent in 2013, down 10 basis points from last year.
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Full-time office-using employment sectors created 33,700 positions in March and nearly 163,000 jobs in the first quarter, primarily in professional and business services. Financial services and information employment continue to grow at only a nominal pace, but the overall increase in office jobs bodes well for the national office sector in the months ahead. With construction of office properties limited, existing spaces will absorb new demand, supporting a 90-basis point drop in vacancy to 15.6 percent during 2013.
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 15, 2013 – 10:19 pm
March 15, 2013
- Fears of the federal sequester did little to deter private-sector employers from dramatically boosting job creation last month, providing further evidence that the job market is building momentum. This trend has been reiterated by a drop in first-time unemployment claims, with the four-week moving average tightening to a new post-recession low. Although the sequester could offer some near-term certainty to businesses, worker furloughs, canceled government contracts and reduced funding for numerous programs could slow private-sector hiring. It remains unclear whether Washington will reduce the cuts or provide agencies wider latitude on how they implement them, both of which would be seen as a positive sign by businesses.
Business conditions made headway last month, supporting a wide range of private-sector industries including energy, housing, retail and auto manufacturing. As a result, all 10 private-employment sectors added workers in February, easily offsetting a loss of 10,000 government jobs to yield a net gain of 236,000 positions. Professional and business services staffing grew by 73,000 workers in February, the most jobs added in any private-employment sector. In addition, temporary staffing’s share of the hiring continued to wane, underscoring companies’ willingness to commit to full-time positions. The momentum is further supported by the housing sector recovery which sparked the addition of 48,000 construction jobs last month.
- The unemployment rate dipped 20 basis points last month to 7.7 percent, the lowest level in four years. Although a reduction in the labor force was the primary driver of the reduction, a decline in the headline catching number will boost enthusiasm. Monthly decreases in the labor force are not uncommon as workers move in and out of the job market, and the fall last month obscures the longer-term rise in the work force since 2009. Further private-sector job growth will likely boost the labor force in coming months, but the unemployment rate will likely trend lower over the course of the year.
Impact on Commercial Real Estate
- Fueled by the gain in professional and business services payrolls in February, full-time office-using employment expanded for the 18th consecutive month. Increases in financial services and information employment generated an additional 84,000 full-time office positions, the largest gain during that stretch. Ongoing staff additions may lead many employers to begin their move into larger layouts in the months ahead, supporting a 90-basis point drop in vacancy this year.
- Recent job growth and a desire among many households to retain mobility to pursue employment opportunities will support strong operations in the apartment sector throughout 2013. Nationwide vacancy was 5.1 percent at the end of last year and, despite an expected increase in completions, vacancy will dip to 5.0 percent in 2013. There remains a chance, however, for private-sector hiring to build momentum, thereby unlocking pent-up rental housing demand. Should this trend emerge, vacancies could tumble even further.
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.
