Matt Valley
WASHINGTON, D.C. — For sectors of the labor market most vital to commercial real estate, the nonfarm payroll jobs report for August proved to be a mixed bag. “The news was good for the office and hospitality markets, poor for the industrial market and neutral for retail,” says Bob Bach, national director of market analytics for Newmark Grubb Knight Frank.
Employers added 96,000 net new payroll jobs in August, short of the 125,000 expected by analysts and shy of the 148,000 monthly average that has persisted since the beginning of 2011. The U.S. Bureau of Labor Statistics also revised the data for June and July lower by a combined 41,000 jobs.
A closer look under the hood by Bach shows the following breakdown for commercial real estate on the jobs front:
• The office-using sectors of professional and technical services, information, and finance together added 36,800 jobs in August, up from 26,000 in July.
• The sectors of the economy most important for the industrial market — manufacturing, wholesale trade, plus transportation and warehousing — lost 1,400 jobs in August, down sharply from the 42,400 jobs gained in July.
• Retailers added 6,100 positions last month compared with a loss of 1,800 in July.
• Leisure and hospitality jobs rose by 34,000, up from 28,000 the prior month.
“Though falling short of analyst expectations, the [August nonfarm payroll report] doesn’t change the storyline of a sluggish recovery and easy monetary policy that has been in place since the Great Recession ended three years ago,” says Bach.
“If anything, the report increases the possibility that the Federal Reserve will move to ease monetary policy even further by embarking on a third round of quantitative easing (QE3). And for that reason, equity markets are on the rise,” adds Bach.
Indeed, the Federal Reserve announced Thursday, Sept. 13, that it would launch a third round of quantitative easing. Specifically, the Federal Reserve will spend $40 billion a month on bond purchases in an effort to jump-start the U.S. economy.
Quantitative easing is a government monetary policy used to increase the money supply by buying government securities or other securities from the market, according to Investopedia. Quantitative easing increases the money supply by flooding financial institutions with capital, in an effort to promote increased lending and liquidity.
Victor Calanog, head of research and economics for New York-based research firm Reis, says that whatever form QE3 might take, a boost in liquidity will lift equities and potentially drive increased demand for U.S. commercial real estate assets, particularly since world trade and other economies aren’t doing so well.
“This silver lining, however, remains a short-term boost to property values and we have yet to see whether the pace of real economic growth — and therefore job creation — will be restored anytime soon,” cautions Calanog.
Expect slow, plodding declines in vacancies and meager rent increases during the next 12 to 18 months, concludes Calanog. “Perhaps that’s the best we can hope for in the current flaccid state of the recovery.”