Payroll Growth Drives Property Performance; Some Uncertainty as Investors Await Tax Plan

 

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Research Brief
March 2017
EMPLOYMENT
Developing Trends
Last month, employers created 235,000 jobs. Goods-producing sectors made a notable contribution to the total, adding 95,000 positions. Construction firms added workers, but natural resources and mining establishments also expanded payrolls for the fourth consecutive month as activity in the energy sector increased.
Retailers shed 26,000 workers from payrolls in February, reflecting some store closures and an ongoing shift of resources to online distribution. Retail property owners have opportunities to replace underperforming chains with fresh concepts, a factor behind a projected decline in U.S. retail vacancy this year to 5.1 percent.
Additional workers entered the labor force last month and secured jobs, leading to a drop in the unemployment rate to 4.7 percent. The unemployment rate for workers ages 20 to 34 also dipped to 5.8 percent, a positive for the potential release of pent-up household creation and apartment property performance.
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Payroll Growth Drives Property Performance;
Some Uncertainty as Investors Await Tax Plan
Healthy job creation in February illustrates a labor market riding considerable momentum. Job growth is bolstering commercial property performance improvements at a time when some uncertainty hangs over commercial property sales. Commercial real estate’s role as an inflation hedge will invigorate the transaction market as clarity on tax and economic policy emerges. A reduction in the unemployment rate last month supported a gain in the average hourly wage. Including the February increase, the average hourly wage is up 2.8 percent year over year, narrowly outpacing the rate of inflation. Growing wages will prompt the Federal Reserve to raise its lending benchmark next week, an expectation already priced into a rise in the yield on the 10-year U.S. Treasury.
235,000 Monthly Job Gain February 2017 2.8% Wage Growth Through February 2017 Y-O-Y
* Through February
Sources: Marcus & Millichap Research Services; BLS
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 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.
Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc.
© 2017 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250

 

 

Homeownership Rate Falls to 12-Year Low; Young Households Favor Apartments

 

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Research Brief
March 2017
HOUSING
Developing Trends
Homebuilders recognize the need for starter homes. The size of a newly constructed single-family home fell 1.6 percent to 2,426 square feet last year. Increased starter-home deliveries would bring relief to the market, but high development costs prevent projects from moving forward.
Single-family permitting issuance dipped slightly from December but remains up 11.1 percent from January 2016. Single-family home starts also advanced 6.2 percent year over year. Rising building activity is good for multiple sectors of the economy as hiring in finance and construction increases while spending at building supply, home improvement and furniture stores also climbs.
Nearly 290,000 apartments were added to inventory during 2016 and strong absorption pushed vacancy down 20 basis points to 3.9 percent. Supply additions will peak this year. Multifamily permitting issuance and starts, however, are slowing, as development lending tightens, suggesting building will taper in 2018.
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Homeownership Rate Falls to 12-Year Low;
Young Households Favor Apartments
Low inventory is restraining sales of existing single-family homes, which rose in January by just 3.7 percent from last year. Despite an uptick in listings, the supply of available homes for sale held firm at a record-low 3.6 months. Healthy demand for homes lifted the median price 7.3 percent year over year to $230,400. Increased inventory could help alleviate some pressure, boosting sales activity and moderating home price appreciation. The homeownership rate fell for a 12th consecutive year in 2016, resting at 63.7 percent in December and declining 550 basis points from its peak. Among those under age 35, the prime renter cohort, the rate fell to 34.5 percent, down from a high of 43.1 percent in 2004. Young households’ increased propensity to rent fuels apartment demand, and the absorption of 294,100 units in 2016 was the fourth highest year on record.
$230,400 Median price of existing single-family home in January 2017 3.6 Months of supply at current sales pace in January 2017
Sources: Marcus & Millichap Research Services; U.S. Census Bureau; MPF Research; National Association of Realtors; National Association of Home Builders
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 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.
Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc.
© 2017 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250

 

 

Confident Consumers Trigger Retail Sales Growth

 

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Research Brief
February 2017
RETAIL SALES
Developing Trends
As e-commerce has grown to represent 12 percent of retail sales, the two largest retailers are pursuing different strategies to drive revenue growth. Wal-Mart recently acquired Moosejaw, which follows the 2016 purchase of Jets.com, in order to drive more traffic to its web portals. Meanwhile, Amazon is expanding third-party offerings on its platform. A recent announcement highlighted a 50 percent increase in third-party sales over the holidays. Significant growth in e-commerce is driving demand for industrial spaces, prompting a 50-basis-point decline in vacancy to 5.7 percent in 2016.
Sales surged 8.5 percent at health and personal care stores over the past year. Boosted by a deal with Target to acquire its in-store pharmacies, CVS added 1,900 locations in 2016.
Nationwide vacancy in retail properties declined 50 basis points over the past year to 5.5 percent, matching the previous cycle lows. Asking rents rose 3.3 percent over that time frame. The 2017 forecast shows vacancy falling an additional 40 basis points to 5.1 percent.
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Confident Consumers Trigger Retail Sales Growth
Consumers followed up robust holiday spending with equally impressive activity in January as core retail sales vaulted 4.4 percent over the past year. Consumer confidence remains near the highest levels of the past decade, reflecting heightened expectations for economic conditions and sentiment. This positive outlook, together with steady job growth and wage gains, has boosted consumption. Rising inflation, driven by strong gains in oil prices, pushed CPI up 2.5 percent over the past year. The ascending inflation bolsters the case for the Federal Reserve to move towards normalizing interest rates over the coming year. After meeting in December, the Federal Reserve announced its intention to hike interest rates three times in 2017.
4.4% Core Retail Sales
Y-O-Y*
2.5% Inflation/CPI
Y-O-Y*
* Through January Sources: Marcus & Millichap Research Services; U.S. Census Bureau; National Retail Federation; University of Michigan Consumer Confidence Index
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 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.
Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc.
© 2017 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250

 

 

Hiring Bounces Back in January, Offers Upbeat Commercial Property Outlook

 

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Research Brief
February 2017
EMPLOYMENT
Developing Trends
Employers added 227,000 positions last month, a notable increase from the average of 148,000 jobs created monthly in the fourth quarter last year. Consumer-oriented employment sectors stood out in January, with retail, healthcare, and leisure and hospitality adding a combined 104,000 workers during the month.
An accelerated pace of hiring is taking shape in office-using employment sectors. The addition of 23,000 technical services workers and 32,000 financial services jobs in January will drive the absorption of office space and help push down the U.S. vacancy rate to 14.2 percent this year.
Unemployment and underemployment rates ticked up last month to 4.8 percent and 9.4 percent, respectively. Reduced labor market slack will drive wage growth, potentially initiating the re-entry into the labor force of discouraged workers and raising the labor force participation rate to maintain job growth.
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Hiring Bounces Back in January,
Offers Upbeat Commercial Property Outlook
Broad-based and robust hiring during January extends last year’s labor market momentum. Other indicators were also positive last month and show a tight labor market, imposing a potential headwind for employers this year. The shrinking labor pool and potential misalignments of skills required to fill open positions may moderate hiring to less than 200,000 jobs per month in 2017. The average hourly wage rose 2.5 percent over the past year. A constricting labor supply is seen as the impetus for an accelerated pace of wage growth and a tailwind for consumer spending. Potentially higher spending at restaurants and stores will maintain healthy operations at retail properties and support a reduction in the national retail property vacancy rate to 5.1 percent this year.
227,000 Monthly Job Gain
January 2017
2.5% Wage Growth
Through January 2017
Y-O-Y
* Through January
Sources: Marcus & Millichap Research Services; BLS
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 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.
Marcus & Millichap is a service mark of Marcus & Millichap Real Estate Investment Services, Inc.
© 2017 Marcus & Millichap. All Rights Reserved.
23975 Park Sorrento | Suite 400 | Calabasas, CA 91302 | Telephone: (818) 212-2250