Look For an Interest Rate Boost After Jobs Report

Jason Jones, Director GRS | Title (480) 428-5580 jjones@grs-global.com

Jason Jones, Director
GRS | Title
(480) 428-5580
jjones@grs-global.com

The May jobs report by the Fed, had both good and potentially negative news for commercial real estate.

The unemployment rate is now apparently at 4.3 percent, the lowest since 2001. And though economists forecasted an increase of about 185,000 new jobs in May, the number came in at 138,000.

What this shows is that office, industrial and retail real estate are doing well, and their facilities are operating, in many locales, close to capacity though there are concerns about mass store closures and how that will impact malls. Health care led the way in all industries with 24,000 new jobs added.

There are conflicting reports, however, how the Fed could deal with interest rates later this month. Obviously, this is a subject that commercial real estate professionals follow closely.

Some reports say that since there weren’t as many jobs added as expected, and wage growth only increased by 2.5 percent year over year, then it is likely that the Fed will not increase rates during its meeting in the middle of June. The Fed previously stated it would rise rates two more times this year, though the increases are expected to be minimal, at around a quarter percentage point for each bump.

Some say that rates will definitely increase based on the jobs numbers, from around one percent to 1.25 percent. The last increase in rates was in March. A Wells Fargo analyst, cited by USA Today (linked at the beginning of this paragraph) said that the Fed will likely rise rates again later in 2017 unless monthly job growth falls below 100,000 or above 300,000.

Commercial real estate investors obviously don’t cheer at the idea of any interest-rate increase, but a jump has been highly anticipated for months now, and the savvy ones have already planned the potential hikes into their deals.

Since commercial real estate is driven by the health of the overall economy, such as job and GDP growth, among other factors, it is unlikely that we are going to see any major impacts on the industry,

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