Retail Sales Thaw in March as Economic Momentum Broadens

April 23, 2014

  • Consumer activity accelerated in March as pent-up demand for retail goods was released following the colder-than-normal winter. The resurgence in spending is one of several indicators that the world’s largest economy is poised to break out this spring after a lackluster first quarter. Over the past two months, nearly 400,000 jobs have been created and jobless claims are close to pre-recession levels, trends that should fuel the economy growth in coming months. Annualized GDP growth is anticipated to accelerate to the mid-3 percent range in the second quarter, which will encourage the Fed to continue tapering the latest round of quantitative easing.

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  • Excluding autos and gas, retail sales climbed 1 percent in March, surprising to the upside. Receipts across nearly every category increased as consumers opened their wallets to make up for lost time. General merchandisers, building material stores, and food service and drinking retailers posted the largest increases among bricks-and-mortar stores. Non-store retailers, including Internet retailers, also recorded healthy gains, with sales jumping 1.7 percent. Only electronics and appliance stores, and gasoline stations faced weaker demand, losing 1.6 percent and 1.3 percent, respectively. Softening home sales pulled down big-ticket appliance purchases, while gasoline stations face increased competition from drugstores.

  • Although auto sales are excluded from core retail sales, they are indicative of consumers’ outlook. In March, consumer confidence reached a six-year high fueled by the future outlook component. The major auto manufacturers posted impressive growth during February and March, boding well for the broader economy. The pace of auto sales surged to an annualized 16.3 million units in March, up from 15.3 million during February. The Big Three, Toyota and Nissan all surpassed expectations during the month.

Impact on Commercial Real Estate

  • Retail sales are well above pre-recession levels, both in absolute terms and on a per-capita basis. However, retail sales gains have yet to translate into occupancy at smaller retail centers due to the supply overhang that many metros still face. Many of these smaller retail centers are dependent upon local businesses to fill their space. As consumption accelerates and demand intensifies this year, particularly in outlying suburbs, leasing activity is anticipated to accelerate and fill much of the dark in-line space still on the market.

  • The industrial sector is largely dependent on consumer spending, particularly with the growth of online shopping. Since the beginning of the recession, online retailers have picked up an average of 1 percent of total retail sales each year. Internet retailers continue to seek local space to support faster delivery models. As a result, industrial vacancy finished 2013 at the pre-recession level and is anticipated to decline 100 basis points this year to 7.2 percent than backfilling empty cubes. As office users seek space in secondary office districts, nearby retailers should finally enjoy foot traffic on par with pre-recession levels.

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.

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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.

Hiring Thaws in March; Private-Sector Staffing Fully Recovered From Recession

April 4, 2014

  • Overcoming interruptions from harsh winter weather earlier this year, U.S. employers regained their stride in March and added workers at a moderate pace. The expansion of payrolls affirms that the U.S. economy is charting a steady rate of growth and assures that the Federal Reserve will remain committed to its pledge of tapering its stimulus program. The labor market should build momentum during the coming months and accelerate growth to add 2.7 million jobs this year.

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  •  U.S. employers hired 192,000 workers in March, and revisions to the preceding two months lifted job growth in the first quarter to 533,000 positions. Factories trimmed payrolls and government staffing was flat, but all other employment sectors added workers last month. One-half of the 57,000 positions added in the professional and business services sector were attributable to growth at temporary employment agencies. The termination of long-term unemployment benefits last December will spur temporary hiring over the next several months. In addition, trade, transportation and utilities establishments hired 38,000 workers last month, primarily in retail, as additional store openings generated new positions.
  • Private-sector payrolls have recovered their prior peak, as approximately 8.9 million workers have been added since hiring resumed in 2010. Professional and business services staffing accounts for more than one-quarter of the gain, and several relatively small employment sectors have also made disproportionately large contributions. Natural resources and mining, which includes oil and gas activities, added 224,000 jobs, accounting for 2.5 percent of the increase over the past four years despite the sector representing less than 1 percent of total private employment. The leisure and hospitality sector contributed 18 percent of all private-sector jobs added, despite only accounting for 12.5 percent of total private-sector payrolls. The gain principally occurred in bar and restaurants, which often bring customers to shopping centers and also expands the universe of single-tenant concepts for investors.

Impact on Commercial Real Estate

  • The primary office-using employment sectors have recovered all of the jobs lost during the recession, positioning the national office sector for a vigorous recovery. Tenant expansions and new businesses will generate an increase in occupied space this year in excess of 2 percent, yielding a 120-basis point drop in vacancy to 14.8 percent. Rents are also on pace to rise 3.5 percent, with more significant growth projected as vacancy tumbles.

  • Much of the increase in construction payrolls last month occurred in residential construction. A considerable portion of residential building is occurring in the multifamily segment, and developers are on pace to bring online 215,000 apartments this year. The increase in supply will exceed a projected rise in demand, leading to a 20-basis point uptick in national vacancy to a still-tight 5.2 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.

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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.

 

Retail Sales Begin to Thaw; Modest but Broad-Based Gains in February

March 14, 2014

  • Consumer spending thawed a bit in February, lifting retail sales for the first time in three months. A long, cold winter has kept shoppers at home over the past few months, particularly in the Northeast and Southeast. Some of the pent-up demand for retail goods was released in February, though revisions to the prior two months cut deeper than anticipated. As the weather improves and the job market maintains a steady growth trajectory, retail sales should gain solid footing. March, however, could prove to be another challenging month for year-over-year comparisons as Easter retail sales will shift to April this year. Nonetheless, most indicators point toward economic improvement as 2014 progresses, which will boost spending, albeit at a more modest pace than during the initial stages of the recovery.

  • Retail sales inched up 0.3 percent during February, which is an encouraging sign after declines in the prior two months. Most of the gains recorded last month were payback from cuts in January, with broad-based gains in eight of the 11 components. The largest advances favored sporting goods and hobby stores, and non-store retailers including the Internet, which climbed 2.5 percent and 1.2 percent, respectively. Food and beverage, general merchandisers, and electronics and appliance stores recorded the only losses last month. All three segments recorded only modest declines and only general merchandisers are in the midst of an ongoing trend toward tightening.

  • Several important economic indicators support retail sales growth going forward, though some headwinds are looming on the horizon as well. Employment growth in February was above expectations as more people entered the job market. Initial jobless claims are also lower, lending credence to a stronger economy. Two major unknowns could dampen consumer spending in the coming months and need to be monitored closely. Mandatory health insurance will pull more than $1 billion out of the economy per month by April, and that number will rise as penalties stiffen over the coming year. Rising interest rates are also a concern as revolving debt becomes more expensive and thousands of homeowners enrolled in the Home Affordable Modification Program face higher monthly mortgage costs.

Impact on Commercial Real Estate

  • Retail operations will continue to improve this year, though new entrants into the “bricks-and-mortar” arena will need to emerge to overcome store closings. Staples will close more than 200 stores, while Radio Shack shutters more than 1,000 units, bringing millions of square feet of dark space onto the market. Nonetheless, demand from healthy retailers will drag down vacancy 70 basis points to 6.5 percent while asking rents progress 2.5 percent to $16.77 per square foot.
  • The industrial sector is highly dependent on retail spending, particularly sales at non-store retailers such as Amazon. Even traditional stores are elevating their presence in the digital arena, including Sears, Wal-Mart and Target. As leases are signed for warehouse space that is conducive to overnight delivery by the Internet retailers, industrial vacancy will dip below the pre-recession rate. This positive momentum will lift average rents by 5 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.

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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.

February Hiring Beats Expectations Despite Winter Severity;

March 11, 2014

  • Once again displaying surprising resiliency and underlying strength, U.S. employers shook off weather-related disruptions last month to add workers at a solid pace. Gains occurred in nearly all employment sectors, dispelling doubts that staffing levels in a number of industries would suffer as businesses temporarily closed and workers stayed home. Continuing growth in payrolls will be one factor encouraging the Federal Reserve to adhere to its strategy of reducing monthly bond purchases.

  • U.S. employers added 175,000 jobs last month, including 162,000 positions in the private sector. Among the private-employment sectors, only information services, dominated by media publications and newspapers, failed to record a gain. Professional and business services led the increase in payrolls, hiring 79,000 workers, while a sizable gain was also recorded in education and health services. Despite supply chain and production disruptions arising from adverse weather, manufacturers added 6,000 jobs last month, primarily in durable goods segments transportation and machinery. Growth in these segments points to greater spending by consumers seeking to replace older vehicles and an increase in capital spending by businesses. With the rise in private sector payrolls last month, more than 98 percent of the positions cut during the recession have been recovered. The pre-recession peak of private-sector employment will soon be surpassed.
  • Construction employment continues to stage a comeback, as 15,000 positions were added last month and gains were posted in 10 of the past 12 months. The increase in building trade payrolls last month was fueled by the addition of 12,300 heavy construction and civil engineering positions, indicating that state and local governments are proceeding with capital improvement projects delayed by the economic downturn. Residential contractor payrolls rose for the ninth consecutive month in February, reflecting the recovery in homebuilding. Multifamily construction is especially robust, with approximately 215,000 new units slated for completion this year – the highest level since 2000.

Impact on Commercial Real Estate

  • The multifamily sector remains the strongest of the commercial property sectors. Nationwide, vacancy declined 10 basis points in 2013, but rising completions will push up the rate 20 basis points this year to 5.2 percent. Several markets have a considerable development pipeline slated for delivery this year, including the Texas metros, Washington, D.C., and Seattle. Because development will be concentrated in core areas of some of the strongest employment markets, few cities will face significant rise in apartment vacancy rates during 2014.

  • Operating conditions in the retail sector will further improve as the strengthened job market buoys consumer confidence and spending. Retail construction remains constrained, and generally consists of single-tenant concepts or significantly pre-leased small multi-tenant properties. As space demand builds momentum over the course of the year, the nationwide vacancy will slip 70 basis points to 6.5 percent, and average rents will advance 2.5 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.

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