_U.S. job growth: People power

According to the U.S. Bureau of Labour Statistics, from 2015 to 2025, labour force growth in the U.S. will fall to just 0.2% per year, as boomers age out of their working years.

April 27, 2017

The commercial real estate industry focuses on job growth as the key driver of demand for space, and well it should. Workers occupy office and industrial buildings, earn wages that pay for apartments and hotel rooms, and buy merchandise that flows through warehouses and shopping centres.

Job growth depends on a strong labour force from which employers can hire, especially now when workers with the right education and skills are hard to find. U.S annual labour force growth hit a peak of 2.6% in the 1970s, as baby boomers and women went to work in great numbers, with growth declining every decade since then. According to the U.S. Bureau of Labour Statistics, from 2015 to 2025, labour force growth will fall to just 0.2% per year, as boomers age out of their working years.

Just as job growth depends on the labour force, the labour force depends on population growth to fill its ranks. Recently the Census Bureau released 2016 population estimates for the nation’s 382 metropolitan statistical areas. The adjacent map illustrates the one-year increase for the 53 areas with populations greater than 1 million—both the absolute increase (the left half of the dot) and the percentage increase (the right half).

A few trends stand out:

On a percentage basis, the top 21 fastest-growing metros were in the South and West; the broad crescent from the Pacific and Mountain states through Texas; and up the Eastern Seaboard as far as Baltimore. Austin led all metros, expanding by 2.9% in 2016, four times the U.S. rate of 0.7%. Raleigh and Orlando followed at 2.5%.
The fastest-growing Midwest and Northeast metros were No. 22 Columbus, Ohio, at 1.1%, and No. 32 Boston at 0.6%.
On an absolute basis, the South and West were home to the 19 fastest-growing metros in 2016, led by Dallas and Houston with population increases of 143,000 and 125,000, respectively. If Dallas and Houston maintain their post-2010 growth rates, they will overtake Chicago to become the nation’s third and fourth-largest metros in the next 20 years.
Outside the South and West, the fastest-growing metros on an absolute basis were No. 20 New York, which added 36,000 residents last year, and No. 21 Minneapolis-St. Paul, with an increase of 33,000.
Eight metro areas lost population in 2016, all in the Midwest and Northeast. Chicago’s population declined by nearly 20,000, the most of any area, followed by Pittsburgh with a loss of 9,000.
Although the South and West are growing rapidly, the growth is not uniform. Six Southern metros posted 2016 growth rates below the national average, with Memphis eking out a gain of just 0.1%. In the West, Los Angeles and San Jose/Silicon Valley both grew at rates below the U.S. average, with high housing prices along the coast pushing development inland.

Three conclusions stand out with respect to commercial real estate:

Population is one of many criteria to consider when comparing metro areas for a new facility or investment. The education and quality of the labour force, business costs and numerous other factors come into play.
Fast population growth—a positive criterion for many investors—can be inversely correlated with barriers to entry—also a positive criterion for many investors.
A rising tide lifts all boats: A real estate growth cycle lifts tenant and investor demand in nearly all markets, even those with a shrinking population. Chicago has seen robust industrial and apartment demand in the current cycle, while Pittsburgh has become a favourite of investors by restructuring its economy around education and health care.

To view a spreadsheet with population data on all 382 metros, click here.

Written by Robert Bach, Newmark Grubb Knight Frank, Director of Research – Americas.

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