If the Jobs Keep Coming, So Will the Capital

Some of the macroeconomic trends predicted for the year are beginning to take shape, particularly the rise in domestic employment numbers. And CRE professionals are finding that where the jobs go, so does the capital.

While the party may be short-lived, some of the larger macroeconomic factors predicted for 2012 are starting to take shape. As Commercial Property Executive reported this morning, Greece is set to take a $172 billion bailout to jump-start its economy. And, earlier this month, job figures – both from January and revised figures from November and December – were up much more than economists predicted. The first month of this year saw 243,000 net positions added, adding fuel to the U.S. economic engine.

And it’s that employment figure that will have the most implications for commercial real estate, according to a report by services firm Cushman & Wakefield Inc. “The projected acceleration in US employment growth in the coming year has major implications for the US commercial real estate market,” the firm noted. “All major sectors: office, industrial, retail and multi-family, will benefit. If we assume that the 3.2 million jobs projected to be added in the next 12 months are distributed among industries in the same proportion as current employment, the (country) will add approximately 660,000 jobs in office-using industries, 345,000 jobs in the manufacturing and distribution sectors and 350,000 in retail.”

So: Where the jobs go, so does the capital.

John Manning, managing director of real estate investment banking for Jones Lang LaSalle Inc., explained his take on the relationship between employment and investor capital. “In locations such as gateway cities where the economy is strong and leasing velocity is high,” he said, “asset values have come back up. We’re starting to see more transaction volume and higher values in those markets.”

“Investors (have been) looking favorably at multi-family assets in the last few years, Manning said, “but the office sector is coming back into favor. Last year was the year of the big ‘pop,’ when rents went up substantially. Certain submarkets, such as Silicon Valley, you’re seeing rents increase 20 to 30 percent or more in a 12-month period. Those are areas that capital will be chasing. The technology sector is really leading the West Coast out of its previous economic recession.”

If the economy continues to expand, and the engine of growth keeps driving, the biggest problem is going to be finding available capital for acquisitions. But a recent  survey of both borrowers and lenders conducted by JLL found that the outlook is “broadly optimistic,” as 56 percent of lenders and 44 percent of borrowers expect credit to be more available in the coming 12 months. “There is little doubt that borrowers are feeling more optimistic about the capital available for their refinancing, acquisition and even construction needs, having met lenders with more appetite for risk as the commercial real estate credit markets continue to improve,” the firm noted. “Lenders also have bold ambitions to place more capital into real estate mortgages in 2012, setting up what should be a strong transaction market environment in 2012.”