Economic Acceleration Expands Commercial Real Estate Demand
A recent Marcus & Millichap report underlines the factors that are fueling demand for commercial space, especially office. These factors are poised to speed up the volume of CRE deals, which has been decreasing in recent months. Following the up-and-down of the stock market, many real estate investors took a pause to assess their risks and investment targets. I would not be surprised to see those investors re-entering the playing field at the same time a volatile stock market sends securities investors seeking refuge in brick-and-mortar assets with long-term appreciation expectations.
The Marcus & Millichap report highlights the following economic acceleration factors:
- Meaningful wage growth has been a missing ingredient in the expansion for the past eight years. Yet now, with unemployment holding steady at 4.1 percent, employers are finally feeling the pressure to increase wage hikes to attract and maintain their human capital. Further evidence of tight labor conditions can be found in job openings at or near record levels of 6 million positions over the past 12 months.
- Despite the low unemployment rate, some slack remains in the employment market and quickening wage growth appears to be drawing back workers who dropped out of the labor pool during the recession. Monthly job gains continue to average close to 175,000, surpassing the 100,000 per month needed to accommodate the expanding population and pointing to labor force gains. The workforce participation rate could increase by 50 basis points, which would add almost 2.5 million potential employees to the job market. Given the possibility for additional labor force expansion, the economy has room to accelerate further as wage growth and inflation remain below levels witnessed in previous expansions.
- A quickening pace of economic growth could prompt additional monetary policy tightening this year. Current policy has the fed funds rate rising three times in 2018, but if indications point to wage or inflation expansion getting out of hand, a more aggressive raising of short-term rates could result.
To read the Marcus & Millichap report click here