By Matt Dolly
August 02, 2019
The July employment report was on par with expectations, adding 164,000 new jobs to the U.S. economy, including 148,000 in the private sector. The national labor force hit a new record total with the additional hires. The growth bodes well for commercial real estate and should help the industry avoid overheating.
The national office market has shadowed the slow and steady growth of the economy. According to Transwestern research, the national office vacancy rate held steady at 9.7% in the second quarter. However, office leasing activity through mid-year was 24% lower than one year ago. Despite this decline, employment growth should keep demand for office space stable. Specifically, the office market will be driven by solid new jobs in the professional services, technology and financial services sectors.
More than 50,000 new jobs were added to the healthcare sector. With a shortage of medical real estate space, traditional office owners have an opportunity to convert buildings to support the growing medical office sector. Demand for healthcare real estate will only continue to grow with the aging population and push to bring medical services closer to consumers.
The latest report found mixed results for the industrial real estate sector. Construction jobs increased in more than 40 states over the past 12 months. However, the manufacturing sector didn’t meet expectations for new jobs in July. That industry fell to a three-year low with an average of only 8,000 jobs created per month this year, compared to 23,000 new jobs per month in 2018. Of course, fewer new jobs in the manufacturing sector is not too surprising, given that many tasks have been replaced with new technology and robotics.
Jobs in retail continue to decrease as online shopping and self-checkout capabilities reduce the need for a large staff. The strong jobs market could also be playing a role as retail workers are shift to higher-paying jobs in the warehouse sector. If this transition continues, more warehousing jobs could contribute to a widespread rise in wages.
The overall July jobs report should support growth in the commercial real estate industry, but there are still headwinds on the horizon. The newly imposed tariffs on China are expected to take place in September. This could have an adverse effect on the economy, as retail prices would likely rise and consumers would get squeezed. In turn, that could lower consumer spending, which had a slow start to the year but experienced strong growth in the second quarter. While ports nationwide have been setting records of late, lower consumer spending could negatively impact shopping volumes and decelerate growth in the industrial real estate sector.
Fortunately, the Federal Reserve’s recent cut to interest rates will benefit the commercial real estate industry. That, coupled with the steady creation of new jobs and rising wages, will help the U.S. economy perform well for the foreseeable future.
Matt Dolly leads research for the New Jersey office. He delivers local and national reports on commercial real estate and economic trends.
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