Economic Watch: Strong Job Growth in April Supports Real Estate Fundamentals

Executive Summary

• The U.S. added 428,000 jobs in April, beating economists’ consensus expectations of 400,000. 
• Leisure & hospitality gained 78,000 jobs, the most of any sector.
• The unemployment rate remained at 3.6%, while the labor participation rate fell slightly to 62.2%. Average hourly earnings were up 5.5% on a year-over-year basis.
• Combined with high inflation, the hot U.S. labor market has caused the Federal Reserve to begin aggressively tightening monetary policy.
• CBRE expects that continued job growth will support real estate fundamentals through the first half of the year but heightened risks will begin to weigh on economic growth in the second half. 

Impacts on Commercial Real Estate

Office

Office-using jobs increased by 76,000 in April. Professional & business services gained 41,000 and financial activities added 35,000. Manageable public health conditions and continued job growth in office-using sectors are positive signs for office demand and the sector’s ongoing recovery.

Industrial

The warehousing & storage sector gained 16,800 jobs in April and manufacturing added 55,000. Even amid inflation and a shift in consumer spending from goods to services, the demand outlook for industrial & logistics real estate remains positive. Additionally, companies are amassing larger inventories to counter continued supply chain disruptions.

Retail

Traditional retail gained 29,200 jobs in April, while food services & drinking places added 43,800. Total U.S. job growth bodes well for continued strength in the retail sector. However, as inflation outpaces wage growth, consumers will begin to draw down excess savings.

Construction

The construction sector added just 2,000 jobs in April. Gains of 7,400 residential and nonresidential construction workers were offset by a loss of 6,400 nonresidential specialty trade contractors. The industry will continue to see headwinds throughout 2022 due to higher material and labor costs, as well as higher interest rates.

Health Care

Health care gained 34,300 jobs in April. Ambulatory health care (outpatient services) added 27,900, while hospital employment increased by 4,500 and nursing & residential care added 1,900. With favorable long-term demographics and fewer pandemic-related disruptions, demand for health care properties should remain positive.

Hotels

Accommodation services added 22,300 jobs in April. CBRE expects continued recovery of the hotel sector amid rising leisure, international and business travel. Travel is a prime beneficiary of the consumer spending shift from goods to services.

Multifamily

The strong labor market continues to support multifamily demand. In addition, high home prices—exacerbated by rising interest rates—will push some would-be homeowners into renting.

The Bottom Line

With the unemployment rate at 3.6%, the strong U.S. labor market should continue to support consumer spending and economic growth. Coupled with high inflation, this supports the Fed’s recent moves to tighten monetary policy. As the year goes on, we expect the lagged impact of higher interest rates to come into focus as economic growth slows.

CBRE expects economic conditions will support real estate fundamentals over the next several months, but slower growth will weigh on markets in the second half of the year. Even amid monetary policy tightening, we expect U.S. GDP growth in 2022 to be above its long-term trend of around 2%. Commercial real estate investment volume in 2022 is expected to approach last year’s record level.