Figures from the latest U.S. nonfarm payroll report show modest gains across all employment sectors, but the overall payroll number is nothing to write home about, according to Ryan Severino, senior economist for New York-based Reis.
“The overall figures are still pretty disappointing,” says Severino. “I wouldn’t say that the bar is too low per se, but the fact that the bar is low and we are having trouble clearing it at this stage of economic recovery is a rather inauspicious sign.”
His analysis is based on the latest nonfarm payroll employment report for December released by the Bureau of Labor Statistics (BLS) last Friday. Overall, employers added 155,000 net new payroll jobs in December, down from 161,000 in November. The biggest gain came from the education and health services sector with 65,000 net new jobs, up from 24,000 in November.
Of that 65,000, health care accounted for 44,500 jobs, a sign of sustained demand from tenants and investors of medical office buildings and related properties, says Bob Bach, national director of market analytics for Newmark Grubb Knight Frank.
(To view larger image of chart, click here.)
The leisure and hospitality sector added 31,000 jobs, up from 29,000 in November. However, the biggest news, according to Bach, came from the construction and manufacturing sectors with 30,000 and 25,000 new net jobs, respectively.
“Builders and contractors are hiring as the housing market revives, and the manufacturing sector is holding up despite recent weakness in exports and an autumn dip in business capital spending that appears to be reversing course,” says Bach.
The manufacturing index rose to 50.7, meaning the sector is expanding again after the index fell to below 50 in November. The nonmanufacturing index surged to 56.1, the fifth increase in the last six months, according to Bach.
December marked the second month in which payroll growth has slowed. In December 2011, 223,000 jobs were added.
Real Estate Business Online asked Bach and Severino to weight in on the latest jobs report and how it affects the commercial real estate industry, below are their answers.
How would you recommend commercial real estate investors weigh their portfolios across the asset classes based on December’s job report?
Bach and Severino agree that commercial real estate investors shouldn’t solely base their portfolios on recent trends. However, Bach says the industrial and hospitality sectors have remained the most consistent during the past six months, and Severino predicts that over the next few years as the economy recovers, office and retail will become better performers in the commercial real estate investment universe.
Severino also says apartments, the current darling of commercial real estate, will see some decrease in performance.
“Anyone perspicacious will want to think about the changing tides over the next few years and how they might reposition their portfolios to capitalize on them,” says Severino.
What’s in the future for the apartment market? Should savvy investors flee the herd and start selling apartments and buying the other property sectors?
Although the housing market is steadily improving, leading to improved financial health for many Americans since much of their wealth is tied up in their homes, Bach says there is room for the apartment market to flourish. However, the biggest rent gains for the apartment sector may be in the rear-view mirror.
Severino says if the economy continues to improve and housing values continue to rebound, there will be a modest recovery in the housing market. This will take away some demand from the apartment market, but not much.
“People make rent versus own decisions based more on the stage of life that they are in, than on pricing,” he says. “ Don’t expect twenty-somethings to start fleeing the apartment market in droves. They will still be in no position, nor will they have the desire, to be home owners just because pricing has stabilized.”
The real risk in the near term, Severino says, is that people in their 30s who have been renting for the last few years who decide to switch to home ownership.
Are we treading water or we poised to have a breakout year?
Bach says he believes that we are still treading water, but an economic recovery still lives.
“I don’t expect much of a difference this year — maybe 2 million net new payroll jobs versus around 1.8 million this year,” he says.
Severino says 2013 will look similar to 2012 in terms of GDP and employment growth. He also says the real hope for growth lies in 2014 and beyond.
“We would need to see hiring return in a much more pronounced fashion if we are to hope for a breakout year, but with the labor market stuck in second gear, I don’t envision that materializing anytime soon,” says Severino.
—Rachel Goff