JOB GROWTH TO SLOW IN ALL OF CALIFORNIA’S MAJOR METRO AREAS IN 2019
Commercial Real Estate Activity, Rents Surging in Some Areas
October 18, 2018—LOS ANGELES, CALIFORNIA—Across California’s major metros areas, job growth is forecast to continue in 2019, but at a slower, and in some cases comparatively meager pace, according to new regional outlooks released today by Beacon Economics Driven by a steadily tightening labor market and little growth in the workforce, the new forecasts for five of the state’s largest urban economies find that fired-up locations such as San Francisco and the South Bay/Silicon Valley will see job growth start to fall below thresholds they may have become accustomed to.
“Economic growth is going to continue in California, but 2019 is looking like the year when the jobs slowdown we’ve anticipated for some time begins to materialize,” said Robert Kleinhenz Executive Director of Research at Beacon Economics. “It is highly unlikely that industries in the state’s biggest urban centers – from tech to professional business services to construction – will be able to hire at a the same pace we have seen in the past few years.”
According to the new outlooks, the unemployment rate in all of California’s major metros has also dropped – and from levels that are already historically low. This represents another indicator of the state’s tight labor market, says Kleinhenz, and that relieving that pressure will require addressing California’s high cost of housing and ensuring that the workforce can continue to gain from both domestic and international migration.
Key Findings By Region:
- Nonfarm employment in Los Angeles County experienced the slowest growth among California’s major metros between August 2017 and August 2018 due to a tight labor market and only marginal increases in the workforce. Employment in the region is forecast to grow between 1% and 1.4% through the end of this year and into 2019.
- Commercial real estate markets in Los Angeles are performing well with the value of building permits issued doubling from the 2nd quarter of 2017 to the 2nd quarter of 2018.
- Between August 2017 and August 2018, total nonfarm employment in the East Bay rose by 1.8%, lagging neighboring San Francisco (+2.1%) and the South Bay (+3.8%) but still expanding thanks to increases in logistics, goods producing, and technical industries. The region’s employment growth is forecast to slow in 2019 due to tight labor conditions.
- The cost of rent for office, retail, and warehouse properties in the East Bay all increased from the 2nd quarter of 2017 to the 2nd quarter of 2018 although commercial rents in the region remain lower than they are in San Francisco and the South Bay.
- San Diego’s unemployment rate dropped to 3.2% in August 2018, the lowest level it has been since 2000. Between August 2017 and August 2018, total nonfarm employment in the region expanded by 1.6%, driven largely by an expansion in the Professional and Business Services sector. This rate of growth is forecast to slow in 2019.
- Office properties in San Diego should be interesting to watch over the next couple of years as more than one million square feet of development will be completed – something that is likely to impact vacancy rates and rental costs.
- The San Francisco economy continues to shine with the lowest unemployment rate in the state (2.2% as of August 2018) – something that is unlikely to change in 2019. Job growth in the region is forecast to finish the year at about 2% but will dip below that pace next year as the local labor market continues to tighten.
- San Francisco is atop national rankings in its commercial real estate markets with office properties leading the way. The vacancy rate at office properties in San Francisco (9.8%) is among the lowest in the United States and the annual cost of rent for this property type increased to $61.08 per square foot from the 2nd quarter of 2017 to the 2nd quarter of 2018.
South Bay/San Jose
- The South Bay is leading the greater Bay Area in terms of job growth, adding 42,000 positions between August 2017 and August 2018 for a 3.8% rate of expansion. For all of 2018, nonfarm job growth is expected to come in at just over 3.5% but will drop below that threshold in 2019.
- There is no cool down in sight for the South Bay’s commercial real estate markets. The average cost of rent for office space in the region is among the fastest growing in California on a year-over-year basis (4.5% compared to 4.2% in San Francisco). Rents have increased for both retail and warehouse properties in the region as well.
For complete findings, please view the full reports for the East Bay, Los Angeles, San Diego, San Francisco, and the South Bay/Silicon Valley attached to this email.
Beacon Economics LLC is an independent economic research and consulting firm based in Los Angeles. Learn more at www.beaconecon.com.
California’s Inland Empire added 6,990 tech jobs between 2016 to 2021; Growth Rate of 39%—Highest Rate Among U.S. Markets
Greater Los Angeles/Orange County Ranked #12 in CBRE’s Annual ‘Scoring Tech Talent’ Report; Region Added More Than 7,000 Tech Workers in 2021, the Third-Largest Gain Among U.S. Markets, and Produced the Second-Highest Number of Tech Degree Graduates
The Greater Los Angeles/Orange County region ranks No. 12 overall in CBRE’s 2022 Scoring Tech Talent report as North American tech-talent employment bounced back from the pandemic to post job gains across most top markets in 2021, though the industry’s resilience will be tested again amid economic turmoil in 2022, according to a new report from CBRE.
California’s Inland Empire is also included in the report among small tech talent markets of less than 50,000 workers. The Inland Empire added 6,990 tech jobs between 2016 to 2021, a growth rate of 39 percent, which was the highest rate among U.S. markets. The Inland Empire also benefits from being the fifth-most-concentrated market for Gen Z, with those aged 20 to 24 years old representing 7.2 percent of the overall population.
The U.S. added a net 136,000 tech talent jobs last year across established hubs such as the San Francisco Bay Area, New York and Seattle as well as smaller markets like Nashville, Cleveland and California’s Inland Empire. Both tech job growth and tech office leasing proved resilient by rebounding in 2021 from slowdowns in 2020.
Los Angeles/Orange County stood out in the report for its tech talent gains during the pandemic, adding more than 7,000 tech workers in 2021 alone. The region also excelled in its tech degree completions, producing the second-highest number of tech graduates in 2020 (14,504), behind only the New York metro.
“The large number of tech degree graduates plays a significant role in the expansion we are seeing in the tech industry throughout southern California. The desirable weather and lifestyle in Los Angeles provides an added attraction for tech talent to remain here and for tech employers to locate where that talent wants to be based. This is fueling expansion by both traditional tech and tech directly linked to the media, entertainment and gaming sectors,” said Michelle Esquivel-Hall, executive vice president with CBRE’s Tech & Media Practice in Los Angeles.
CBRE’s report, now in its 10th year, ranks the top 50 North American markets by analyzing 13 measures of their ability to attract and develop tech talent, including tech graduation rates, tech-job concentration, tech labor pool size, and labor and real estate costs.
CBRE also ranks the Next 25 emerging tech markets on a narrower set of criteria. Tech talent is defined as 20 key tech professions — such as software engineers and systems and data managers – across all industries.
Greater Los Angeles/Orange County stood out in the report in several other key areas:
- Greater Los Angeles/Orange County’s tech talent workforce grew by 10 percent from 2016 to 2021, reaching 235,800 workers. This makes it the fifth-largest tech talent workforce in North America.
- The region produced nearly 45,000 more tech degrees than tech jobs between 2016 and 2021, meaning more tech talent is available for companies looking to hire in the region.
- It is the 10th-most-concentrated market for both millennials and Gen Z with the age cohorts representing 22.6 percent and 6.8 percent of the overall population, respectively. For this analysis, CBRE defines millennials as 25 to 39 years old and working age Gen Z as 20 to 24 years old.
Worker Shortage Holding Back Full Job Recovery in California’s Major Metros
True to Form: Home Prices in the State’s Legendarily Expensive Housing Markets Surged More Than $100K Above Trend During Pandemic
A mounting shortage of workers is the main culprit behind slower job recovery in California’s major metropolitan regions, according to an analysis released today by Beacon Economics. While the inland areas of the state now have more jobs than they did prior to the COVID-19 recession, none of California’s five large coastal metros have reached their pre-pandemic levels of employment.
But they are close, and while these urban areas continue to inch back towards full recovery, says the analysis, each is struggling with a tight labor supply, limiting the ability of local employers to hire the workers they need.
“Any glance at a major job finding site makes it quickly apparent how intensely California employers are trying to hire,” said Taner Osman, Research Manager at Beacon Economics and one of the report authors. “The demand for workers is high, but we don’t have sufficient labor supply, and that is going to continue constraining near-term job growth.”
From best performing to worst, San Diego County has now recovered 99.5% of all the jobs it lost during the pandemic recession, the South Bay/Silicon Valley has recovered 98.1% of its jobs, Los Angeles and the East Bay/Oakland have both recovered 97.3% of their jobs, and San Francisco trails with a recovery rate of 96.6%. With the exception of San Diego, all are trailing California as a whole (98.9% job recovery) and the nation (99.5%).
As with last edition of this analysis, each metro is forecast to reach or surpass pre-pandemic job levels in the first half of 2023 (San Diego by the end of 2022). The relative sluggishness of their recovery can be better understood in the context of record-low unemployment rates.
With the exception of Los Angeles, the state’s largest coastal metros currently have unemployment rates that are at or close to historic lows: San Francisco 1.6%, South Bay 1.7%, and San Diego and the East Bay 2.4% (unemployment in LA is higher than it was pre-pandemic, due in part to a slower recovery in that region’s all-important Leisure and Hospitality sector).
“Unemployment rates are defined by the number of people actively looking for work who are not currently employed” said Osman. “Those rates are so low in nearly all of California’s largest metro areas, they can’t fall much further, and these conditions are reflected in the inability to hire enough workers.”
The analysis also examines the red-hot housing markets in the state’s coastal metros, forecasting that while home prices will continue rising in the near-term future, at least the rate of price appreciation will cool.
According to the analysis, high demand throughout the pandemic pushed price growth in most of the regions studied above their already steep, upward pre-recession trend. In these metros, prices are estimated to be approximately $127,000 to $169,000 higher than they would have been had it not been for the pandemic and the economic effects it spawned. San Francisco is the one metro where prices did not rise above trend, but that may be a function of the region’s already exceptionally ‘vertical’ price growth.
Worker Supply Remains Primary Obstacle to California Job Growth
April Job Gains Revised Upwards In Latest Numbers
California’s labor market continued to expand at a steady pace in May (the latest data), with total nonfarm employment in the state growing by 42,900 positions over the month, according to an analysis released jointly by Beacon Economics and the UCR School of Business Center for Economic Forecasting and Development. April’s gains were also revised up to 44,600 in the latest numbers, a 3,200 increase from the preliminary estimate of 41,400.
While California has added jobs at a healthy pace in 2021 and 2022, as of May 2022, the state has recovered just 93% of the jobs that were lost in March and April 2020, and there are still 193,800 fewer people employed in California compared to February 2020. Total nonfarm employment in the state contracted 1.1% over this time compared to a 0.5% drop nationally. However, with a larger portion of its workforce to be recovered, California increased payrolls by 5.2% from May 2021 to May 2022, outpacing the 4.5% increase nationally over the same period.
California’s unemployment rate fell to 4.3% in May, a 0.3 percentage-point decline from the previous month, which was driven by an increase in household employment (+121,000). California’s unemployment rate remains elevated relative to the 3.6% rate in the United States overall. While growing by 75,000 in May, the state continues to struggle with its labor supply. Since February 2020, the California labor force has fallen by 232,100 workers, a 1.2% decline.
“The low unemployment rate in the state shows that worker supply remains the primary obstacle to job growth in California,” said Taner Osman, Research Manager at Beacon Economics and the Center for Economic Forecasting. “Moreover, a clear dichotomy has emerged, whereby labor markets in the state’s central communities have outperformed the coastal communities; the coast is routed in high cost and housing supply constraints and continues to experience labor market shortages.”
- While a handful of sectors in California are now exceeding their pre-pandemic peaks, employment levels in the hardest hit sectors remain below their pre-pandemic levels and should continue to steadily gain back jobs over the coming months.
- Leisure and Hospitality led payrolls gains in May, with payrolls expanding by 8,800. However, this industry still has a long way to go to recover all of the jobs lost due to the pandemic, with payrolls still down 8.4% since February 2020.
- Other sectors posting strong gains during the month were Information (8,800), Construction (7,100), Health Care (6,600), Government (4,600), Manufacturing (3,700), Other Services (3,600), and Transportation, Warehousing, and Utilities (3,600).
- Job gains were broad based in May with Retail Trade (-9,900) being the only sector to post significant losses during the month. Finance and Insurance (-500) and Mining and Logging (-300) also shed positions during the month, but the losses were minor.
- Regionally, job gains were led by Southern California. San Diego saw the largest increase, where payrolls grew by 6,700 (0.4%) during the month. Orange County (6,500 or 0.4%), Los Angeles (MD) (5,200 or 0.1%), the Inland Empire (2,600 or 0.2%), and Ventura (2,100 or 0.7%) also saw their payrolls jump during the month. The Inland Empire (123.4%) has experienced the strongest recovery in the region, measured by the percentage of jobs recovered from April 2020 to May 2022 relative to the jobs lost from February 2020 to April 2020. The IE is followed by El Centro (110.2%), San Diego (97.1%), Orange County (86.5%), Los Angeles (MD) (83.9%), and Ventura (79.8%).
- In the Bay Area, San Francisco (MD) experienced the largest increase, with payrolls expanding by 2,700 (0.2%) positions in May. The East Bay (1,900 or 0.2%), San Jose (1,700 or 0.1%), and San Rafael (MD) (600 or 0.6%) also saw payrolls expand during the month. Since April 2020, San Jose (86.2%) has experienced the strongest recovery in the region, followed by the East Bay (83.8%), San Francisco (MD) (78.4%), Santa Rosa (76.5%), Napa (75.6%), Vallejo (67.4%), and San Rafael (MD) (62.6%).
- In the Central Valley, Sacramento experienced the largest monthly increase as payrolls expanded by 3,200 (0.3%) positions in May. Payrolls in Visalia (500 or 0.4%), Fresno (400 or 0.1%), Merced (300 or 0.4%), and Yuba (200 or 0.4%) increased steadily as well. Since April 2020, Visalia (127.9%) has experienced the strongest recovery in the region, followed by Stockton (124%), Yuba (124%), Madera (112%), Merced (111.9%), Sacramento (110.8%), Redding (105.1%), and Fresno (104.5%).
- On California’s Central Coast, San Luis Obispo added the largest number of jobs, with payrolls increasing by 1,100 (0.9%) during the month. Salinas (900 or 0.6%) and Santa Barbara (700 or 0.4%) also saw payrolls expand. Since April 2020, and San Luis Obispo (92.7%) has experienced the strongest recovery in the region, followed by Santa Barbara (89%), Salinas (82.2%), and Santa Cruz (80.5%).
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