Brighter Consumer Outlook Spurs Spending Boost

 

RESEARCH BRIEF

 

 

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Research Brief
December 2016
RETAIL SALES
Developing Trends
Retail property operations are set to strengthen further in 2017 as net absorption outpaces development. Vacancy will fall 40 basis points to 5.2 percent at the end of 2017, the lowest level since 2000.
Growing home sales and apartment absorption pushed home furnishings and furniture sales up 4 percent over the past year. Expanding demand for housing in 2017 will further increase growth for this sector.
Amazon opened a prototype grocery store for testing near its headquarters. Branded Amazon Go, the concept centers around a no-hassle, no-checkout-line experience supported by a smartphone app. Opening to the public in 2017, the national rollout could include up to 2,000 locations.
The 2016 Holiday sales forecast updated with November data shows solid growth in the 3.6 percent range increase over 2015 and also above the 7 year average of 3.4 percent growth.
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Brighter Consumer Outlook Spurs Spending Boost
The post-election bump on Wall Street has supported a rise in confidence from 87.2 in October to 93.7 for November, the third highest monthly gain since the end of the recession. Rising consumer optimism was evident in November’s 3.7 percent year-over-year growth in core retail sales, which was well above the 2.2 percent yearly average from the previous 12-month period. Retail sales growth was supported by exceptional gains in the health and personal care category, where sales vaulted 6.2 percent over the past year. Retailer Ulta Beauty has capitalized on a growing trend of providing services as well as selling products, leading the company to undertake a dramatic expansion. Plans call for doubling the store count to 2,000 locations and hiring 2,500 workers.
3.7% Core Retail Sales

November 2016

Y-O-Y

2.4% Wage Growth

Through 3Q 2016

Y-O-Y

* Through November

Sources: Marcus & Millichap Research Services; U.S. Census Bureau; National Retail Federation

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.
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Fed Rate Increase Creates Mixed Signals for Investors

Research Brief
December 2016
RATE INCREASE
IMPORTANT FACTORS
The current 4.6 percent unemployment rate is effectively full employment. The tight labor market will support wage growth, raising inflationary pressure and prompting the Fed to remain highly vigilant in the coming year.
Past Federal Reserve monetary policy tightening decisions triggered a decline in the stock market and lower long-term Treasury rates. This increase was widely expected and could be different.
The Federal Reserve rate increase is largely already baked into the 10-Year Treasury rate, which has risen by nearly 80 basis points since early November. Lenders have held spreads through this period, raising borrowing costs and widening the buy/sell expectation gap.
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Fed Rate Increase Creates Mixed Signals for Investors
The Federal Reserve raised its overnight rate by 25 basis points to a range from 0.50 percent to 0.75 percent. This decision reiterates the positive economic outlook for 2017 that could accelerate monetary policy in the coming year. Rising interest rates will remain a significant factor in the commercial real estate market that could force asset repricing. Rising rates widen gap in expectations and slow trans-action velocity as investors reassess prospective yields. While many sellers are still trying to achieve peak pricing, buyers are reevaluating acquisition criteria in a rapidly moving capital environment. The performance outlook remains positive, but modest upward pressure on cap rates is emerging.
2.57% 10- Year Treasury
Dec. 14, 2016
4.6% Unemployment
Rate – Nov. 2016
* Through November ** Through third quarter
Sources: Marcus & Millichap Research Services; BLS; Federal Reserve Board
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. Labor Market Resoundingly Consistent; November Hiring Maintains Trend of Broad, Steady Growth

December 2, 2016

  • The pace of hiring in November serves up the latest evidence that U.S. payrolls continue to expand at a steady pace and measures of labor market slack are also tightening. With the U.S. economy on track to add 2.2 million jobs during 2016, the path for the Federal Reserve to raise its benchmark short-term lending rate later this month appears to be clear. A more aggressive pace of rate increases could ensue in 2017 as the central bank monitors the effects of the new administration’s policies on economic trends and inflation.

  •  housing-sector-16_9_mm_largeAn expansion of private-sector payrolls and hiring at government agencies underpinned a gain of 178,000 positions last month, a level more than sufficient to absorb new entrants to the labor force and take up slack. The addition of 63,000 professional and business services workers led growth in all sectors and included nearly 24,000 new posts in technical services, a primary office-using field. After subdued growth in the past five years, the greater share of office-using jobs attributable to gains in technical services payrolls in 2016 could accelerate an increase in office space demand next year.

  • An unemployment rate of 4.6 percent and an underemployment level of 9.3 percent mark the lowest levels in each measure during the current cycle. Breaking it down further, the unemployment rate for college-educated workers also hit a multiyear low of 2.3 percent last month. With a record level of job openings and a dwindling supply of college-educated workers available to fill many of the open spots, employers may encounter greater challenges meeting staffing needs in the coming months. Monthly job gains could moderate as a result, but this is not a sign of the economy weakening.

  • Additional growth in technical services payrolls continues to positively affect office property performance this year and appears positioned to make a greater contribution in 2017. In 2016, the U.S. office vacancy rate is on track to fall to 14.4 percent and an additional decline is anticipated next year. A missing element of the current improvement in office property performance is financial services employment, which remains below the pre-recession peak even after adding 145,000 positions so far this year.

  • Payroll additions and rising wages support increased household formation, helping to maintain strong demand trends and low vacancy in the U.S. apartment sector. This year, the national apartment vacancy rate will decline to 3.8 percent. The projected delivery of 371,000 apartments in 2017 will likely mark the peak of the current construction cycle, but vigorous absorption means the national vacancy rate will only rise nominally. Class A complexes will be most vulnerable to new supply, while the Class B and Class C segments will maintain robust demand trends.

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.

Sustained Pace of Hiring Lowers Key Unemployment Rates; Rising Wages Could Intensify Inflation Pressure

November 4, 2016

  • The labor market maintained a healthy pace of growth in October. In addition, a vigorous rise in wages and upward revisions for the previous two months point to economic growth that will sustain positive forward momentum. Coming after the strong third quarter GDP number of 2.9 percent, October’s employment data reaffirms the underlying strength of the national economy and signals a high probability that the Federal Reserve will lift its benchmark lending rate in December.

  •  housing-sector-16_9_mm_largeU.S. employers added 161,000 positions in October, and hiring totals for the preceding two months were revised upward by 44,000 jobs, which suggests stronger employment trends for the coming months. Year to date, the economy has averaged 181,000 positions per month and remains on track to add about 2.2 million this year. Service industries are leading the labor market so far this year, especially healthcare as well as professional and business services. The current labor market expansion has been the steadiest economic barometer since the end of the recession, and maintaining a monthly pace of 150,000 jobs will absorb new entrants into the labor force as well as whittle away labor market slack.

  • The unemployment rate receded to 4.9 percent last month and other measures of the labor market also improved. The underemployment rate of 9.5 percent marked the lowest level in more than eight years, while the average hourly wage increased 2.8 percent from one year ago, the fastest rate of growth since 2009. U.S. employers are competing more vigorously for workers as labor market slack abates. Additional wage increases could accelerate inflation and economic growth, encouraging the Fed to normalize monetary policy more quickly.

  • Growing wages will potentially drive spending during the upcoming holiday shopping season and support a higher pace of GDP growth during the current quarter. The Atlanta Fed upwardly revised its fourth quarter forecast to 3.1 percent on the heels of the October employment report. Retailers are benefiting from strong consumer spending trends and keeping U.S. retail properties full. Vacancy in the retail property sector is on track to fall 40 basis points this year to 5.6 percent.

  • Household formation during this growth cycle has favored renting rather than homeownership, pointing to a shift in lifestyle and barriers to homeownership. As a result, apartment developers have ramped up construction, and builders will complete 320,000 units this year, the highest annual total since the 1980s. Healthy net absorption will keep vacancy near 4 percent through the remainder of the year.

  • Hiring momentum and rising wages will contribute to the creation of new rental households. Growing demand will push down the U.S. apartment vacancy rate to 3.8 percent this year on net absorption of 354,000 units and support a 4.5 percent gain in the average rent. Completions will hit a cycle high of 320,000 rentals in 2016 and peak at 371,000 units next year. Supply growth will pressure vacancy in a few major metros, although net absorption will remain elevated and minimize the impact on vacancy.

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.