November Jobs Report Disappointing for CRE
There is no more closely watched economic indicator by office building owners and commercial real estate professionals than employment statistics. After all, job growth is the only prescription that will effectively treat an ailing office real estate market. The unemployment rate rose from 9.6% in October to 9.8% in November, according to Friday’s employment report from the U.S. Department of Labor.
An article published in NREI titled, ” Unbuckle Your Seat Belts for a Slow Ride, Says Economist” summarized that many economists are scratching their heads, trying to figure out why the nonfarm payroll employment figures for November came in well below expectations, particularly after a report on private sector hiring released earlier in the week was so encouraging.
So Far, Pretty Much a Jobless Recovery
It’s been over two years since the Credit Crisis and nearly three years since the start of The Great Recession. Although the recession officially ended in June 2009, and the bleeding has stopped in most office markets around the country, many are still waiting for signs of life as the economy continues to struggle with job creation. Not only is this the deepest post WWII recession in terms of payroll job losses, but the recovery is very sluggish.
Non-Farm Payroll Employment: Nov-08 to Nov-10
Source: US Department of Labor – BLS
When Will the Office Jobs Come?
A significant improvement to market fundamentals for the U.S. office sector is entirely dependent on a substantial and sustained upturn in office employment. Since the recession ended the U.S. labor market has recouped only 11% of the jobs that were lost. Employers still aren’t hiring in a big way despite strong earnings and record levels of cash reserves. Employers are learning to do more with less, as businesses were forced to figure how to be more productive in order to survive during the recession.
There is also uncertainty regarding the pace and depth of the recovery so companies are taking their time before they start hiring again, and because of the productivity gain they don’t need to hire as many people.
Aggregate office space demand is still shaky and modest signs of increasing demand is limited to specific core markets and in higher quality office properties. The economy isn’t growing quickly enough to prompt employers to hire new workers. Looks like it could be long road back for the office market and a very slow ride.