Hiring Bounces Back in September, Supports Broad-Based CRE Momentum

October 9, 2014

  • Reinforcing the broadening economic momentum, U.S. employers added workers at a brisk pace in September, alleviating disappointment in August’s lackluster hiring report. The steady job gains stand in stark contrast to last year when the looming government shutdown restrained employer additions. Since last year’s shutdown, however, uncertainty has eased dramatically. The establishment of a federal budget and debt ceiling have helped support both business optimism and consumer confidence. Aside from the still-limited wage growth trends, the U.S. economy appears poised to finally begin an accelerated growth trajectory. The economy still faces hurdles, however, as election year politics could once again destabilize fiscal policies and fears of contagion from European economies teetering on the edge of recession erode confidence.
  • U.S. employers added 248,000 jobs in September, with the growth dispersed across nearly all sectors. Gains in trade, transportation and utilities, and professional and business services accounted for nearly half of the job additions, but other segments also made sizable contributions. Broader availability of healthcare boosted hiring by medical practices and healthcare facilities, which added 32,000 workers. Meanwhile, significant increases in multifamily development contributed 16,000 construction jobs. The manufacturing sector has also supported hiring, with 4,000 new positions last month. The broad-based nature of hiring throughout the recovery reiterates the diverse range of business segments contributing to the momentum, reinforcing the belief that this growth cycle will be sustainable for several years.

  • Through the first three quarters of 2014, nearly all private employment sectors added staff at a faster pace than they did in 2013. Two retail-related segments, however, slowed their pace of hiring — just 222,000 jobs were created at bars and restaurants in the first three quarters of this year, a decline of about 20 percent from their 2013 pace. Hiring in retail trade also slowed, falling 35 percent from last year’s rate of job creation to 148,000 new positions year to date. Both of these segments led the hiring recovery last year, so the tapering growth rate may simply signal that these fields are finally approaching capacity. Despite this slowing hiring pace, retail assets and restaurant locations both continue to benefit from rising occupancy and rent.

    Impact on Commercial Real Estate

  • Professional and technical services, a leading user of office space, led the employment recovery and maintained steady additions this year. Through September, 217,000 workers were added by this sector, contributing to positive net absorption of office space and a decline in U.S. office vacancy in the first half of 2014 to 15.6 percent. This performance has been further supported by the slow ramp-up of office construction. By year end, national office vacancy will fall an additional 30 basis points to 15.3 percent, lifting rents 3.7 percent for the year.

  • The majority of the construction payroll gains was supported by accelerated multifamily development across the country. With nearly 240,000 new units expected in 2014 and another 210,000 forecast for 2015, the apartment sector is in the midst of its strongest building boom in 15 years. Demand, however, remains vigorous as employers have stepped up hiring. National apartment vacancies fell 60 basis points in the first half of the year and appear to have tightened an additional 10 basis points in the third quarter, reaching 4.3 percent — the tightest national rate since 2006.

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. Follow Marcus & Millichap Research Services on Twitter! 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.

Broad Based Retail Sales Growth Lifts Commercial Real Estate Performance

September 19, 2014

  • August’s retail sales performance reaffirmed the notion that the U.S. economy is on the precipice of a breakout. Most notably, limited wage growth has continued to restrain consumers from stomping on the economic accelerator. Additionally, Americans have developed a thriftier mindset in the aftermath of the recession that has led to a higher savings rate and reserved borrowing patterns despite elevated consumer sentiment. These headwinds should dissipate in the coming months as positive economic news broadens. Year-over-year wage growth is trending near the post-recession high, and household income in strong technology markets has surged. The improving job market will entice discouraged workers back into the labor market, and as a greater portion of the population is employed, new households will be created, in turn boosting retail sales.
  • As expected, retail sales jumped in August as consumers went back-to-school shopping, though the welcome surprise was an upward revision to June and July’s previously announced figures. Overall, retail sales jumped 0.6 percent last month, lifting the annual gain to 5.0 percent, which reversed a trend of slowing growth. Excluding autos and gas, retail sales advanced 4.8 percent over the past 12 months. Nearly all of the discretionary spending categories landed on the positive side, indicative of healthy consumption patterns. Only gas stations were a major detractor, though falling fuel prices predicted last month’s result.

  • Inflationary pressure could be looming, potentially posing a threat to retail sales and the broader recovery. The seven-year run of low interest rates has significantly expanded the money supply, while the pace of inflation has remained lethargic. If the Fed maintains its growth-centric stance when considering interest rate hikes, inflationary pressure could outdistance the Fed’s ability to apply the brakes without upending the economy. Other than August’s somewhat weak job report and still-high underemployment, few justifications to stimulate growth through asset and bond purchases or an early 2015 rate hike remain.

    Impact on Commercial Real Estate

  • The prolonged low-interest-rate environment has reshaped the single-tenant, net-leased investment market. Capital preservation has become a much greater motivator for purchases, particularly from retiring baby boomers. The alternatives to single-tenant properties leased by corporate-backed tenants are limited and generally riskier. As interest rates climb, investors will find other safe havens for retirement funds, bringing balance back to the single-tenant market.

  • Retailers are relying on technology rather than people to drive retail sales higher, though employment in the retail trade sector is advancing as space is absorbed. This year, retailers will add 270,000 workers, lifting payrolls to within 60,000 jobs of the pre-recession level. Retail vacancy, meanwhile, will decline to 6.5 percent on space demand growth of 1.2 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. Follow Marcus & Millichap Research Services on Twitter! 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.

Economy Maintains Steady Growth Trajectory As Employers Temporarily Ease Hiring Pace

September 8, 2014

  • Lackluster hiring in August slightly dimmed the warm glow cast by recent upbeat reports on other segments of the economy but ultimately will have little effect on economic growth in the second half of 2014. Average monthly job gains this year exceed the levels recorded one year ago, and U.S. employers remain firmly on track to add 2.7 million jobs this year. Job creation will accelerate in the months ahead, but the gradual tightening of the labor market will not force the Federal Reserve to alter its timeline for raising its benchmark interest rate.
  • U.S. employers added 142,000 positions in August, including 134,000 posts in the private sector. Only information services, a sector that mainly encompasses media, cut jobs last month, while manufacturing payrolls were flat because of regular summer plant closures. Among the expanding sectors, 47,000 workers were hired in professional and business services, which includes many degreed, well-paying positions. Staffing at healthcare providers continues to grow, while 20,000 construction jobs were also added. Residential building, especially in the multifamily segment, continues to rise and will support additional hiring in the months ahead.

  • Momentum continues to build for solid economic growth in the near term. Widely watched gauges of manufacturing and service sector activity reveal that expansions remain firmly on course, and a steady rise in new orders will support additional hiring and spending in the months ahead. Despite the drab headline number in the employment report for August, labor market conditions are also improving, a trend best illustrated by recent declines in layoff announcements and initial unemployment claims. Hiring is generally rising, while a consistent rise in the number of workers purposely quitting jobs underscores a greater level of worker confidence in their ability to find employment.

    Impact on Commercial Real Estate

  • U.S. retail property vacancy dipped 20 basis points in the second quarter to 6.9 percent behind a modest improvement in space demand and limited supply growth. Retail establishments cut jobs in August, and hiring thus far in 2014 lags the pace set in the first eight months of last year. The pace of store openings may be slowing as vacancy tightens, thereby limiting the number of layouts that meet the needs of expanding retailers. Vacancy will tighten further in the second half of 2014, while the average rent will grow 2.5 percent for the year.

  • Greater hiring this year continues to relieve pent-up demand for rental housing and has contributed to a 60-basis point plunge in the national apartment vacancy rate to 4.4 percent in the second quarter. However, multifamily construction as a percent of all residential building remains near an all-time high and shows no signs of abating. Accelerating deliveries of rentals will raise national apartment vacancy to 5.2 percent at year end, 20 basis points more than the year-end 2013 level.

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. Follow Marcus & Millichap Research Services on Twitter! 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.

U.S. Employers Lift Payrolls, Maintain Solid Pace of Job Creation

August 4, 2014

  • Hiring maintained momentum in July, with U.S. employers displaying a considerable measure of resilience amid a challenging and shifting global scene. 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. However, several economic indicators, including a strong initial reading of second quarter GDP, point to a U.S. economy that continues to generate new business opportunities for U.S. companies. Accordingly, hiring will remain steady over the near term barring an unanticipated shock to the economy.
  • Private-sector employers added 198,000 positions in July, combining with rising government payrolls to yield a total gain of 209,000 workers for the month. All 10 private-employment sectors created jobs last month, led by a sizable increase in professional and business services payrolls. This sector includes a wide range of office-using positions, temporary employment and building maintenance. Elsewhere, ongoing apartment construction and a modest level of single-family development contributed to a gain of 22,000 construction jobs in July. Nevertheless, subdued building in other commercial property sectors leaves construction payrolls nearly 1.7 million positions short of the previous peak. Other leading sectors include trade, transportation and utilities, which added 39,000 workers in July, primarily at retail outlets, while expanding medical practices contributed to growth in education and health services staffing.

  • The Federal Reserve announced its intention to continue its tightening of monthly bond purchases to $25 billion this month, citing labor market slack as justification for maintaining its accommodative monetary policy. In the near term, the central bank will closely monitor the labor force participation rate and the underemployment rate, which has been stuck in the low-12 percent range for the past four months. Sustainable improvements in both measures would indicate the economy is running closer to full potential and provide justification for the Fed to modestly tighten its highly accommodative positioning.

    Impact on Commercial Real Estate

  • Increased merchandise inventory passing through warehouses and distribution buildings supported additional hiring for warehouse positions. 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. Construction of new space is muted, and growing space demand will reduce the national industrial-property vacancy rate 100 basis points in 2014 to 7.1 percent.

  • 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 U.S. office sector. Tenant expansions drove the national vacancy rate 30 basis points lower to 15.6 percent in the first two quarters of 2014. 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 percent by year end.

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. Follow Marcus & Millichap Research Services on Twitter! 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.

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