M&M: Labor Market Could Boost Offices, Apartments

Though April did not add much to U.S. payrolls, the labor market remains in sound condition and could benefit offices and apartments, said Marcus & Millichap, Calabasas, Calif.

Employers added 160,000 jobs last month, down from 242,000 in February and 215,000 in March, the Labor Department reported.

“Other labor market trends including low initial unemployment claims and higher job openings indicate that employers continue to expand even as the current economic cycle proceeds beyond its typical duration,” M&M said in a special report, Steady April Hiring Boosts Real Estate Demand.

M&M said the U.S. economy remains on track to add 2.5 million jobs during 2016 despite April’s sub-par performance.

“Office-using employment sectors stood out in April,” the report said, noting that professional and business services establishments hired 65,000 workers while financial services added 20,000 employees.

“Hiring in office-using fields last month further improves U.S. office sector prospects, where limited construction continues to divert new demand to existing properties,” M&M said. The real estate services firm projected that 87 million square feet of net absorption will surpass completions in 2016, dropping U.S. office property vacancy 30 basis points to a post-recession low of 14.8 percent.

U.S. apartment vacancy remains tight at 4.2 percent, M&M reported. “An influx of new college graduates into the workforce in the coming months will spark household formation and drive additional traffic to leasing offices around the country,” the report said. It forecast that the apartment vacancy rate will remain in the low-4 percent range even as thousands of new units deliver.

“Low vacancy and steady demand growth will also support a 4.5 percent bump in the average [apartment] rent,” M&M said.

The retail sector looks less prosperous, M&M said. Retailers cut 3,900 jobs during April as retailers trimmed store counts and emphasized online distribution. But M&M noted that roughly two-thirds of employers plan to hire recent college grads this year, the highest percentage since 2007. “New hires will lift spending on items including work apparel and goods needed to set up households,” the report said.