Economy Watch: Employment Gains Good for Real Estate, Except Maybe in Construction

The generally solid jobs report from the Bureau of Labor Statistics on Friday means that a small interest rate increase is going to happen next month (unless it doesn't; this is the Fed, after all).

The generally solid jobs report from the Bureau of Labor Statistics on Friday probably means that a small interest rate increase is going to happen next month (unless it doesn’t; this is the Fed, after all). As important as that might be, the details of the report also bode well for various kinds of commercial real estate. The sort of employment that eventually boosts office space usage, for instance, had a good month, and for that matter, has had a good year in terms of job growth.

For instance, professional and technical services added 27,000 jobs in July, with gains in computer systems design and related services (up 9,000) and architectural and engineering services (up 6,000). These jobs might not involve cubicles any more, but they will take some kind of office space, even if it’s open, creative space. And it seems to be more than monthly noise: Over the past 12 months, professional and technical services has added 301,000 jobs. Also, employment in financial activities rose by 17,000 in July and 156,000 over the past 12 months, while insurance carriers and related activities accounted for more than half of the gain in July (up 10,000) and for the year (up 85,000). Finally, management of companies and other enterprises added 14,000 jobs during the month, another driver of office space (a few of these might still want corner offices, too).

Retailers are adding workers as well, though that doesn’t necessarily translate to greater space usage right away, since adding staff to a previously under-staffed store isn’t going to spur the opening of new stores. Even so, employment in retail trade increased by 36,000 in July and has risen by 322,000 over the last 12 months. As usual, retail car dealers are a hot category, and thus hiring more people, with motor vehicle and parts dealers adding  13,000 jobs in July. Employment likewise continued to trend up in general merchandise stores (Walmart and its ilk, up 6,000 positions). Restaurant employment is growing, too. Employment in food services and drinking places continued to trend up in July (up 29,000) and has increased by 376,000 over the year.

Of especial concern to developers and construction companies is the rapid rise of construction employment. So rapid, in fact, that it threatens to outpace the number of potential workers available for projects, especially in high-demand markets (Seattle, say, or Denver). Though there wasn’t much of an increse in employment in July (noted the BLS), a recent report the Associated General Contractors of America said that the number of employed construction workers stood at 6.38 million in July, the highest total since February 2009. At the same time, the number of unemployed construction workers dropped to 474,000–the lowest since 2001. The pool of construction labor, in other words, is getting a bit shallow.