Employment Numbers Boost Property Performance, Generate Investment Concerns
December 2024, employment numbers released by the Bureau of Labor Statistics (BLS) reported that 256,000 jobs were added to the economy, while the unemployment rate remained at 4.1%. All told, payroll employment increased by 2.2 million in 2024. While less than the 3.0 million increase in 2023, the news suggested continued economic growth.
According to a recently published Marcus & Millichap brief, the increase in jobs represents good and bad news for commercial real estate.
On the Positive Side
The brief explained that most 2024 hiring activities took place in the education and health services sector. “More people working in these fields, including in high-wage positions, serve as a tailwind for future multifamily and retail performance,” the brief pointed out. Meanwhile, such hiring also underscores ongoing demand for medical office and medical retail spaces.
On the other hand, manufacturing hiring contracted over the year, meaning “a potential headwind for related industrial properties,” the brief said. Net absorption for industrial properties also slowed in 2024, partially due to oversupply. However, the Marcus & Millichap analysts forecast that the supply pressures should ease in 2025, given the shrinking development pipeline.
Then There’s the Interest Rates
The major issue with the optimistic jobs report is the Federal Reserve’s actions concerning the Effective Federal Fund Rates. The brief noted that improved job growth, a continued low unemployment rate and “PCE inflation holding stubbornly in the high-2% band in November all support a lower probability of a Fed rate cut within the next several months.”
An unchanged overnight lending rate could mean upward pressure on Treasuries—in early January, the yield on 10-year notes was higher than at any time in 2024, hitting 4.7%. “If sustained, this will impact long-term commercial real estate mortgages, which may hinder investment sales,” the brief explained.
