WASHINGTON, D.C. — Job growth is the straw that stirs the drink for the commercial real estate industry, but the addition of 103,000 payroll jobs to the U.S. economy in September is hardly cause for celebration, say real estate economists.
What’s more, employers are leasing office space at a cautious pace, observes Victor Calanog, director of research for New York-based Reis. Net absorption of office space nationally slowed from 3.2 million square feet in July to 2.1 million square feet in August and 1 million square feet in September, “a somewhat worrying downward trend,” points out Calanog.
In its release of the September jobs report last Friday, the Bureau of Labor Statistics revised the payroll figures upward for July (+42,000) and August (+57,000) by a total of 99,000, bolstering the argument that the economy is slowly improving and not headed back into recession (see chart below).
The U.S. economy has now added nearly 1.1 million new jobs year-to-date through September, up from 940,000 for all of 2010, according to Reis.
“While the September report is good news compared with last month’s preliminary report that zero jobs were created in August, the labor market is still not growing fast enough to begin absorbing the nation’s long-term unemployed,” says Bob Bach, chief economist for Santa Ana, Calif.-based Grubb & Ellis.
Since April, payroll employment has increased by an average of 72,000 per month, down significantly from an average of 161,000 for the prior seven months.
The national unemployment rate was unchanged at 9.1 percent in September, with approximately 14 million Americans out of work. Meanwhile, average weekly hours rose 0.1 percent and average hourly earnings were up 4 cents.
Office Outlook Varies
An estimated one-quarter of the 1,074,000 jobs generated during the first nine months of 2011 were office-using jobs, or about 269,000, says Calanog of Reis.
During that same period, the U.S. office market posted 15.7 million square feet in net absorption. (Reis tracks single-tenant and multi-tenant office space in 79 office markets.)
“We’re looking at an addition of less than 60 square feet of occupied space per each net job created,” says Calanog. “That is a rather slow pace of leasing velocity, given that office-using employees each typically occupy anywhere from 100 to 200 square feet of space.”
Bach of Grubb & Ellis is more encouraged about the performance of the office sector, however, based on the brokerage’s research findings, which differ from that of Reis.
The office sector absorbed 13.6 million square feet in the third quarter, preliminary Grubb & Ellis figures show, “better than the second quarter and in line with a normal office market recovery,” says Bach.
The vacancy rate nationally fell 40 basis points in the third quarter to 16.9 percent, according to Grubb & Ellis. Reis data shows the third-quarter office vacancy rate at 17.4 percent.
Growing and Shrinking Sectors
Government shed 34,000 jobs last in September, while private sector employers added 137,000 led by professional and business services (+48,000), education and health services (+45,000) and information (+34,000).
The employment figures for the information sector were inflated by the return of 45,000 striking Verizon workers to the labor force, according to Bach.
Meanwhile, employment in the manufacturing sector dropped by 13,000 jobs in September while the leisure and hospitality sector shed 4,000 jobs.
Retailers added 13,600 jobs in September, which suggests that they have an optimistic outlook for consumer spending, says Bach.
“Last month’s growth in jobs, hours worked and earnings should provide some support for consumer spending going into the holiday season.”
— Matt Valley