Strong Employment Gains Reinforce Outlook For Positive Real Estate Space Demand

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Research Brief
March 2018
Developing Trends
The labor market added 313,000 jobs in February. The economy has added jobs for the 89th straight month, the longest continuous employment expansion on record. Stimulus being added to the economy, especially from the decline in corporate tax rates, should support employment gains.
Expanding retail sales and employment reinforce declining vacancy. Retail employers added 50,000 jobs last month, indicating steady sales growth and reinforcing expanding space demand. This will underpin tightening vacancy rates and 3.2 percent rent growth in 2018.
Office absorption outlook positive. With almost 85,000 professional and business services jobs added already this year, office demand forecasts appear on pace to push the national vacancy rate to the lowest level since 2008.
Recent Research Briefs
Strong Employment Gains Reinforce Outlook
For Positive Real Estate Space Demand
Steady economic tailwinds push employment growth. The employment market pointed to an economy on firm footing in February as employers added the most jobs since July 2016 with 313,000 positions filled. Uncertainty pertaining to the changing tax and regulatory environment caused some companies to maintain cautious investment outlays, but the passage of tax reform has improved and inspired more firms to boost their capital spending and hiring plans.

Construction and manufacturing employment increases should bolster apartment demand. Higher capital investment announcements by corporations have elevated hiring year to date in both construction and manufacturing. Expansions in these sectors will boost the ability of younger non-college-graduate adults to move out from their parents’ homes and form their own

households. Many of these newly formed households will have a high propensity to rent and Class B and C apartment properties could be attractive options. The elevated demand for Class B and C apartments will maintain upward pressure on rents and sustain higher rental rate increases compared with Class A units, where the majority of new supply additions remain focused.

Federal Reserve remains vigilant in maintaining stable growth. The employment report highlights robust growth but without signaling overheating as average hourly earnings moderated after spiking last month. The Fed will closely monitor the economy for signs of a quickening expansion pace but current conditions should keep monetary policy on track for the continued gradual normalization of rates.

313,000 Job Gain
February 2017
4.1% Unemployment Rate in
February 2017
Sources: Marcus & Millichap Research Services; BLS
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