Getting a handle on labor – part 2

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From Ben Breslau
Managing Director, Americas Research
Jones Lang LaSalle

The Bureau of Labor Statistics’ recent jobs report estimated that 69,000 net new jobs were created last month. This falls well below expectations. They also reported a downward revision in their net new jobs estimate for April.

Here is part 2 of our Q&A with Ben as her puts this into context and tells us what it means for business.

Q: How is the Eurozone crisis affecting office markets?

BB: As companies in the U.S. have slowed hiring in recent months, demand and touring levels in our office markets have clearly been affected. Specifically some of our larger markets including New York City, Washington, DC, and Chicago have seen a real decline in activity. Even the fast-growing tech and energy industries, while still leaders, are beginning to slow from their peak growth rates of four months ago.

Q: Are you seeing impact on the capital markets?

BB: Investment transaction activity in the first quarter increased by about 15 percent across property types from the same period a year ago, so capital remains focused on U.S. real estate as an attractive asset class. Given the brewing distress in Europe, the U.S. may even see an increase in real estate capital looking for perceived safer opportunities and stronger, though still slow, growth potential. 

Q: Are there any bright spots?

BB: Despite modest slowing, technology and energy remain firmly in growth mode, and office markets with concentrations in these sectors, including Austin, Denver, Houston, Phoenix, San Francisco, Seattle and Silicon Valley, should continue to see gains even as the national recovery stalls.

Q: How are countries such as Brazil, Mexico and Canada faring with regard to the Eurozone crisis?

BB: None of these countries have huge ties to Europe. Canada and Mexico are very interdependent on the health of the U.S. economy, so any slowing growth in the U.S. as a result of a Europe crisis would have ripple effects.

Q: What should we keep an eye on for the rest of the year?

BB: The job numbers are the real key for real estate. Job growth has really lagged in the small business sector especially, which accounts for half the jobs in the U.S. and made up 2/3rds of the growth in the last expansion cycle. Small businesses have been starved in the early part of this recovery because bank credit has been hard to get. Now U.S. banks are better capitalized and lending again, so to gauge job growth keep an eye on bank lending. 

-Ben

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