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STRONG JOB GROWTH IN JUNE COULD BOOST OFFICE OCCUPANCY IN NEAR TERM

Posted on by in Features

By Scott Reid

Private sector employees in June added 262,000 jobs and government agencies added 26,000 positions, for a net gain of 288,000 new jobs that will potentially have a substantial impact on commercial real estate, according to a Marcus & Millichap report. During June, the unemployment rate fell to 6.1 percent from 6.3 percent in May, reaching its lowest level since September 2008.

According to the commercial real estate services provider, these new jobs will create demand for rental housing, strengthening the 20 basis-point rise expected this year that will bring the national vacancy rate to 5.2 percent.

Marcus & Millichap predicts that growth in degreed professional and business service fields, as well as those in the financial services, will fill vacant office space and generate demand in the remaining quarters of this year.

An increase in office property operations will result in a 120 basis-point drop in U.S. vacancy to 14.8 percent this year.

Robert Bach, director of research for the Americas with Newmark Grubb Knight Frank, says the growth was “robust.” He also believes the increase in jobs in the sectors most important to commercial real estate will support net operating incomes as space is filled and rents move higher. This will, in turn, he says, support investment activity.

During the second quarter of 2014, an average of 272,000 total positions were added monthly, surpassing the average monthly gain of 190,000 new jobs in the first quarter. The office-using sectors, comprising information, financial activities and professional and business services, added a combined 93,000 jobs in June, well above the previous six-month average of 51,900.

Hiring at retail stores led to an increase of 72,000 trade, transportation and utilities positions. Due to recent positive reports on factory orders and manufacturing, the nation’s plants added 16,000 posts in June, while construction payrolls grew by 6,000 positions.

The revised combined total for April and May increased by 29,000 jobs.

According to Bach, some analysts suggest that the improving labor market could prompt the Federal Reserve to raise interest rates sooner than it had intended in order to head off inflation. However, Bach says inflation is unlikely to become problematic with wage growth mired around 2 percent, which remains low by historic standards.

Bach, who has previously called the labor market “remarkably consistent in its unremarkable performance,” says the decline in unemployment from 6.3 percent in May occurred for the right reasons. He cites the fact that the number of survey respondents who said they worked during the reference week rose substantially, the number of unemployed fell substantially and the labor force expanded modestly. This had the effect of prompting discouraged persons to resume abandoned job searches.

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