January’s Paltry Job Growth Mean a Muted Short-Term for CRE

Last week’s disappointing job report highlighted several trends important to the CRE community.

From a general perspective, the resurgence of COVID-19 continued to hang over the economy in January. Only 49,000 jobs were created in the month after a loss of 227,000 positions in December.

Still, there is reason for optimism. In a report analyzing the jobs figures, Marcus & Millichap says the continuing vaccinations and fewer infections in early February could point to brighter days ahead.

In the short-term, though, the picture is more muted for CRE, based on January’s hiring trends. 

Outside of a significant surge in hiring by educational institutions, professional and business services drove January’s job growth. However, many of those jobs were for temporary roles, which means firms probably want to maintain flexibility during the pandemic, according to M&M.

The pursuit of temporary solutions doesn’t just apply to hiring. “While most companies see a physical office as a permanent and necessary part of their culture and operations, the exact timing and nature of when and how employees return in mass remains unclear,” according to M&M.

While office vacancies have risen as this uncertainty swirls, Class A space prices have risen moderately, showing there is still long-term demand for the asset type.

Ongoing issues in hotels, restaurants and retail hindered January’s job growth numbers. In hotels, revenue per room remains half of what it was 12 months prior. While leisure and hospitality lost jobs in January, the numbers weren’t as bad as December. With restrictions lessening around dining in California and New York, restaurants and bars in those states may get a boost soon, which could give overall numbers a jolt.

With an end in holiday spending, retail trade jobs were cut in January. Electronics stores and general merchandisers eliminated seasonal hires. Essential retailers, like grocers and food vendors, have performed relatively well and hired personnel in January.

M&& notes that January’s tepid job numbers show the importance of additional stimulus in the form of the Biden administration’s $1.9 trillion proposal. It estimates that if the stimulus is modified by mid-March when the current support systems expire, it could go a long way in carrying the economy until widespread reopenings release pent-up demand.

While the second stimulus gave the US economy essential support, in a recent video John Chang, SVP and director of research services from Marcus & Millichap, said a third stimulus is even more critical. 

“If a third round of stimulus is passed, that’s good for real estate,” Chang said. “If a third round of stimulus is stalled, then we can expect the economy to soften and real estate with it.”

For a full recovery, job losses will need to be addressed. M&M notes that the number of people out of work for 27 weeks or longer remained mostly unchanged in January at 4 million, up 250 percent year over year. “Reducing this figure will be a critical part of the recovery going forward,” it said.