Economy Watch: Real Estate Markets Benefit from Boost in Engineering Jobs

The missing piece of the puzzle for full economy recovery is still higher wages across most sectors of the economy.

The missing piece of the puzzle for full economy recovery is still higher wages across most sectors of the economy. Productivity is up, profits are up, yet wages are not up so much. While month-over-month changes might not mean much, the February income report by the Bureau of Labor Statistics, released on Monday, said that personal income was up 0.4 percent for the month, more than expected. Unfortunately, wages and salaries weren’t the driving component of the increase: they increased $23.9 billion in February, compared with an increase of $47.3 billion in January. Private wages and salaries (excluding government workers) increased $21.9 billion, compared with an increase of $44.2 billion.

Wage trends are of concern to commercial real estate because better-paying jobs help keep certain sectors of the industry healthy. Retail in particular benefits directly, but so does the industrial market indirectly, as long as those higher-paying workers are buying more goods in stores or (increasingly) ordering things online. Either way, a distribution/warehouse landlord somewhere benefits. Better-paid workers also take more trips, which boosts hotel and restaurant revenues. In many places, higher-paid workers are also supporting growth in apartment markets, because many of these workers still prefer to rent.

In terms of remuneration, certain kinds of jobs naturally do better than others, and these days many of the best-paying jobs are STEM: science, technology, engineering and math, fields that are also adding more workers. According to a recent study by the Brookings Institution, “Computer systems design alone generated 250,000 new jobs [between 2010 and 2013]. Certain advanced manufacturing industries—especially those involved in transportation equipment—have also added thousands of jobs after decades of losses. In 2013, the average advanced industries worker earned $90,000 in total compensation, nearly twice as much as the average worker outside of the sector.” And it’s no short-term trend: Between 1975 and 2013, earnings expanded 63 percent  in the advanced industries after adjusting for inflation, according to the report—compared to just 17 percent outside of the sector.

Regions with high concentrations of STEM jobs, and growth in the STEM labor pool, will probably enjoy healthier real estate markets as well. Which markets are experiencing the fastest growth in STEM jobs? According to data compiled by Praxis Strategy Group, some of the top growth markets from 2001 to 2013 for STEM aren’t surprising: Austin, the Research Triangle in North Carolina, Houston (in the energy sector), San Francisco and Seattle. Other markets are less known, but are rising fast: San Antonio, Nashville, Salt Lake City, Indianapolis and Baltimore. Though their concentration of STEM is high, yet other markets aren’t growing these kinds of jobs as quickly as one might expect, such as in Boston, Denver, Chicago and Washington, D.C.