Commercial Real Estate Seen Withstanding Economic Headwinds, Job Cuts Rise, Unemployment Claims Incr
Commercial Real Estate Seen Holding Up
The chief economist of a prominent real estate trade group predicts commercial property demand should hold up well, despite the onslaught of interest rate hikes, inflation and other challenges that threaten to slow the overall U.S. economy.
“Outside of the office sector, which is lagging behind as employers allow increased remote work flexibility to keep and attract talent, commercial real estate continues to strengthen,” Lawrence Yun of the National Association of Realtors said duringthe commercial and economic trends forum presented near Washington, D.C.
“The industrial sector is booming, retail is turning positive, the hotel industry is recovering, apartments are doing very well and rents are rising in all commercial sectors,” Yun said Wednesday, according to a statement from the Chicago-based trade group that represents more than 1.5 million residential and commercial real estate professionals.
The economist said a nationwide housing shortage, seen particularly in large urban areas, will result in “solid rent growth” over the next two years, with apartment rents expected to keep rising by more than 10%. That trend could bode well for commercial investors looking into land development, given the scarcity of developed residential lots in many regions.
Yun said the industrial property market is getting a second wind from “just-in-case” inventory buildup as wholesale inventories boom, and industrial rents are likely to keep rising in the next two years as vacancy rates remain below 5% in many regions.
Matt Vance, senior director with brokerage CBRE, told the forum crowd that cautionary factors include global economic uncertainty, persistent inflation and rising interest rates, which have increased the cost of capital and overall capital market volatility. “These conditions have restricted loan proceeds, which has negatively affected asset pricing,” Vance said.
Company Job Cuts Rise
Though they remain relatively rare in what is now considered a worker-friendly market, layoffs by U.S.-based companies rose 14% in April from the prior month, according to job placement firm Challenger, Gray & Christmas.
The 24,286 job cuts announced by companies in April also marked a 6% rise from April 2021, the first time this year that job reductions were higher than year-earlier levels, the Chicago-based firm reported Thursday.
“Job cuts appear to be on the rise, particularly as companies assess market conditions, inflationary risks and capital spending,” Andrew Challenger, the company’s senior vice president, said in a statement. “Despite this, job openings are still at record highs. Workers who are being cut will have lots of opportunities and will likely land quickly.”
Employers announced plans this year to cut 79,982 jobs, down 52% from the first four months of 2021 and the lowest January-April total since Challenger, Gray & Christmas began tracking the monthly trend in 1993. Year-to-date, the healthcare and health products industry has announced the most job cuts at 15,928, followed by financial services at 8,675.
Unemployment Claims Increase
Initial claims for unemployment insurance, another jobs metric watched closely by commercial property investors, totaled 200,000 nationwide for the week ended April 30, up 19,000 from a revised 181,000 in the prior week, the Labor Department reported Thursday.
The total number of continued claims for benefits in all programs, reported on a more delayed basis, was approximately 1.48 million for the week ended April 16. That marked a decline of about 35,000 from the previous week and was well down from more than 16 million claims seen in the comparable week of 2021.
The department also announced Thursday that U.S. labor productivity, a gauge of economic activity based on economic output per hours worked, decreased 7.5% in the first quarter of 2022 compared with the prior quarter. But the decline was just 0.6% from the first quarter of 2021.
Labor Department numbers also showed that unit labor costs — the amount that businesses pay workers to produce one unit of a product or service — rose 11.6% in the first quarter compared with the prior quarter. The year-over-year increase was 7.2%, the largest seen since the 8.2% for the third quarter of 1982 and reflecting other nationwide trends showing employers are having to pay more these days to attract and retain workers in many industries.