Overall U.S. employment continued its five-year run of momentum into 2017, yet a reduction in commercial real estate jobs hints at uncertainty and a looming potential pullback in hiring. Commercial real estate hiring tends to be a leading indicator of the larger employment market, and just as CRE jobs fell off in early 2007 in advance of the larger market correction, so too do the last six months of 2016 warn of weakness, reports our latest SelectLeaders Job Barometer.
Commercial real estate job postings fell 38 percent from May 2016 through the end of the year with a reversal of the trend in January. Commercial real estate employers became tentative in their hiring starting in mid-2016, and the question is whether the reversal we saw in January is a temporary blip or a true reversal in confidence. Development-related jobs continued to decline, adding credence that employers may feel the cycle is heading towards the retrenchment stage.
Commercial real estate hiring does exhibit a “January Effect,” where job posting tends to jump in January and then fall off in the spring before jumping again during the fall hiring season. Hiring budgets and the slowdown during the holiday season certainly impact this hiring trend that has held relatively consistent since data tracking began.
Our research, which has tracked the employment opportunities, trends, and hiring practices in the commercial real estate industry since 2006, reveals a discernible cycle of commercial real estate employment activity that mirrors real estate market cycles. The NCREIF Property Index (NPI), which represents quarterly, unleveraged returns on private commercial real estate investment property, serves as a proxy for the real estate market cycle and when compared to CRE job postings reveals job postings are a leading indicator of real estate market corrections yet lag recoveries. Commercial real estate values and returns bounce back much more quickly than jobs, while employers’ decisions to pullback on hiring often tells us the direction the market is heading.
This is the first in a two-part series of a CRE employment outlook. In the next post, we’ll explore the new “Commercial Real Estate Employment Cycle” and how activity and trends are shaping hiring.