What Do July's Job Numbers Mean for Commercial Real Estate? 8 Top Economists Weigh In
The US economy added 215,000 jobs in July (with a seven-year low unemployment rate), leaving many concerned the strong results could trigger the Fed’s long-awaited interest rate hike. Bisnow spoke to eight top economists to get their thoughts on what it really means for the commercial real estate industry.
Suzanne Mulvee, Director of Research, CoStar Portfolio Strategy
"Today’s job numbers (including the upward revision to last month) suggest that the economy will continue its reliable, though far from bullish, pace of growth. This will promote additional gains in CRE demand. However, the bigger question may be whether the report was strong enough to cause the Federal Reserve to raise interest rates in September. Already, we are seeing a bump in borrowing costs, as banks start to hedge a likely rate move, which should put a floor under cap rates."
Rajeev Dhawan, Director of Economic Forecasting Center at J. Mack Robinson College of Business, Georgia State University
"Looking at valuations at properties, given that there is a now a good feeling that the Federal Reserve will start raising rates in September, the issue will be how much will they go up in the future. They may go very slowly. That is good because it’ll give you time to do your calculations. If the cash flow goes up, then you are coming out ahead. Home investors, buy it right now. If you are a multifamily builder, start building. If you are a renter, sign your lease now before the rent goes up."
Ray Torto, Harvard Lecturer, Retired Global Chief Economist at CBRE
"What really counts is what’s the long-term trend. The numbers are quite good and have been for like a year now. I think the trend is right, and I think real estate is really in a sweet spot right now. The fundamentals are still quite strong. The hotel industry is expecting to have the best year ever in terms of revenue growth…office industrial is doing quite well. Real estate is doing well."
Victor Calanog, Chief Economist, Reis
"Job growth is most strongly correlated with demand for office space; expect more of the same tepid absorption and rent growth patterns that have been operative since 2010."
Christopher Thornberg, Founding Partner, Beacon Economics
"I don’t think this job reports means much; it’s a continuation of an ongoing trend. There are two sides of it, right? When you’re talking about real estate, there’s the kind of construction/renting part of it and there’s the investor part of it. Again, what does this mean? The Fed has more or less shouted at the economy that they’re going to start raising rates and certainly this suggests that they will be on target to start raising rates somewhere near the end of this year. The 10-year barely responds to movement, the five-year kind of does. I don’t consider it very relevant. I think it’s at best a limited influence in today’s real estate market."
Lawrence Yun, Chief Economist, National Association of Realtors
"The fact that we have now added about 3 million jobs in the past 12 months assures that the leasing activities in office, retail and multifamily leases should be rising. Overall positive news, but not always OK. We still have elevated levels of part-time wages that are barely budging. The construction jobs are not coming around. We have seen the vacancy rates fall across all commercial property rate types. I would characterize today’s numbers overall as being good but not great."
Robert Bach, Director of Research – Americas, Newmark Grubb Knight Frank
"It’s right on target and there’s really no surprises. I guess, overall, it’s pretty good news for commercial real estate. Retailers and restaurant owners are optimistic of consumer spending. The bottom line here is the economy is perking along. Rates are going to be rising because the economy is going to be able to handle it. It’s a good thing, because we’re going to be generating jobs to fill vacant space. There’s nothing to dissuade the Fed from beginning to raise rates next month. It’s the dark lining of the silver cloud."
Andrew Nelson, US Chief Economist, Colliers International
"I think this is a mildly strong jobs report, generally consistent with expectations. Certainly, strong enough to give the Fed enough confidence to raise rates later this year. Interest rates will still be relatively affordable so firms that need capital to expand won’t notice much of a difference. The rising interest rates from the Fed have had a bigger impact on short-term bonds than long-term bonds and mortgages. I think the Fed is eager to see a return to normalization and they’ve been bolstering the economy with artificially low interest rates. So the impact on real estate will be limited at least in the early stages of this, there’s a great deal of demand in terms of domestic and off-shore investors, and I don’t see that changing at least for the near-term."