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Apartments, Industrial Benefit As Economy Rallies

November 18th, 2014

Two of the prime beneficiaries of a rallying economy have been apartments and the industrial sector, says Marcus & Millichap in a new report. In the case of multifamily, it’s due to improving employment levels among the age cohort most likely to rent.

“More than two-thirds of individuals ages 20 to 34 rent apartments, and the employment market for this group continues to improve,” writes Hessam Nadji, managing director of research and advisory services at MMI, in the firm’s latest Research Brief. “Following a drop last month, the unemployment rate for 20- to 34-year-olds sits at 7.5%, down from more than 12% four years ago when the US economy started adding jobs.”

Accordingly, MMI foresees that new tenants will emerge as additional individuals enter the workforce in the months ahead, thereby continuing to exert downward pressure on the vacancy rate. By year’s end, the apartment vacancy rate nationally will decline 30 basis points to 4.7%.

As for industrial, MMI notes that movement of goods from US ports to manufacturers, retailers and distributors supports a significant increase in transportation and warehouse staffing. “Including the addition of 13,300 positions in October, more than 100,000 workers have been hired year to date to handle the stocking and movement of goods,” according to Nadji. “New space needs are also arising in warehouse and distribution properties, keeping the national industrial vacancy rate on course to fall 100 bps this year to 7.1%.”

Yet there’s a potential downside to the economic upturn, in the form of interest rate increases, especially since the Federal Reserve ended its six-year program of quantitative easing. “Inflation pressures have been tame thus far, but should inflationary pressures rise, including wages, the Fed may begin to take action,” Nadji observes.

Payrolls gains in October totaled 214,000 for non-farm employment, marking the ninth consecutive month of gains exceeding 200,000 jobs. As reported on GlobeSt.com last week, the largest number of new jobs for the month, 42,000, occurred in the food services and drinking places sector, which has averaged 26,000 new jobs per month over the past year. Retail added 27,100 positions during October as stores geared up for the holiday selling season.

Professional and business services employment continued trending upward, although the 37,000 new jobs added in October for these key office-using employment sectors were well below the 12-month average of 56,000. And despite falling gas prices, the energy sector has not stopped hiring, adding 2,500 workers last month.

Although unemployment dipped again last month, to 5.8%, the Research Brief notes that “significant wage gains have yet to accompany the reduction in slack.” Hourly earnings rose “nominally” in October, and have barely exceeded the pace of inflation over the past year.

“Further tightening in the labor market, however, could pressure wages and potentially cue the Fed to consider raising rates,” Nadji writes. “Most indicators point to the second quarter 2015 for when the Fed will begin to edge rates higher.”

 

Source: GlobeSt.

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