Retail Availability Declines as Employment Advances

U.S. macroeconomic momentum declined during the fourth quarter of 2015, buffeted by global economic slowdown and financial volatility. Based on the second estimate from the Bureau of Economic Analysis, real gross domestic product (GDP) rose at an annual rate of 1.0 percent, a slight improvement from the first estimate.

Consumer spending advanced at an annual rate of 2.0 percent in the fourth quarter, benefiting from the winter holiday season. However, with soft retail sales, brisk electronic commerce proved the silver lining. Spending on durable goods increased by 3.4 percent, as consumers purchased furniture, household appliances and recreational goods and vehicles. Nondurable good purchases advanced modestly, driven by sales of clothing and shoes.

Payroll employment rose at the strongest pace in the last stretch of the year, adding 837,000 new jobs. The figure closed the year with a total net gain of 2.7 million employees. Average weekly earnings of private employees rose by 2.4 percent in the fourth quarter of this year, compared to one year earlier. The unemployment rate declined from 5.6 percent in the first quarter 2015 to 5.0 percent by the close of the year. At the end of December there were 7.9 million unemployed Americans.  The average duration of unemployment declined from 31 weeks in the first quarter to 28 weeks by the end of 2015.

Consumer confidence, as measured by The Conference Board, declined to 96.0 in the fourth quarter of 2015, the lowest reading of the year. Separately, the Consumer sentiment index compiled by the University of Michigan moved up slightly in the last quarter of the year to 91.3, compared with the 90.7 value from the third quarter. The second quarter value was 94.2 while the third quarter posted 90.7.

Demand for retail properties has picked up in tandem with rising employment and confidence. Retail tenants are expanding, leading developers to increase construction. Vacancy rates for retail buildings declined 10 basis points in the fourth quarter, to 11.2 percent, based on CBRE data. With declining availability, rents are expected to rise.

realtors fundamentals

Commercial fundamentals in smaller markets continued improving during the fourth quarter of 2015. Leasing volume during the quarter rose 3.0 percent compared with the third quarter of 2015. Leasing rates advanced at a steady pace, rising 2.5 percent in the fourth quarter, compared with the 2.5 percent advance in the previous quarter. Even with a soft holiday shopping season, retail vacancies declined 40 basis points, to 12.9 percent in the last quarter.

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George Ratiu, Director, Quantitative and Commercial Research

George Ratiu, Research Economist, writes regular economic columns and conducts research in the areas of commercial real estate, international investments, mortgage performance and foreclosures. He produces NAR’s Commercial Real Estate Outlook and manages quantitative surveys, including the Commercial Real Estate Quarterly Market Survey.

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