C&W: Continued Employment Growth Supports CRE

Employment fundamentals that drive demand for commercial real estate space remain sound, reported Cushman & Wakefield, New York.

February’s stronger-than-expected jobs report continued a string of improving economic data, which should help calm the nerves of anxious equity markets, said Cushman & Wakefield Americas Head of Forecasting Rebecca Rockey. “For the first time in 2016, we have now observed three straight weeks in which the S&P 500 closed higher than the week before.”

The Bureau of Labor Statistics said 242,000 jobs were created in February, reversing January’s “disappointing” 172,000-job figure, which reflected several soft months in various goods-producing industries, Rockey said in C&W’s U.S. Employment Tracker report.

The unemployment rate remained at 4.9 percent for the second consecutive month in February and the underemployment rate dropped to 9.7 percent from 9.9 percent in January, BLS reported. Rockey said this indicates that the labor market will continue to tighten. “Wage growth should continue to increase, leading to healthy growth in income and consumer spending, which will ultimately feed business growth and the real estate markets,” she said.

Other positive labor market indicators included record job openings, a “quit rate” (the percentage of the workers that voluntarily left their jobs) of 2.1 percent–the highest point this cycle–increased labor force participation and widespread hiring across all sizes of firms.”This bevy of metrics suggests that future labor demand and therefore future space demand will remain healthy,” Rockey said, noting that there were more than 500,000 retail jobs, 700,000 industrial jobs and one million office jobs waiting to be filled at year-end 2015.

Rockey said a combination of soft industrial production and trade data and the potential for more global headwinds will likely lead the Fed to delay further interest rate increases until later this year as it seeks a better sense of the overall state of the U.S. and global economies. “But the February employment report should quiet the talks of a recession occurring in the U.S. anytime soon,” she said. “No single factor is more important for commercial real estate than job creation, and from that perspective, the fundamentals remain as solid as any time since the expansion began seven years ago.”