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.