The Weekly Briefing - March 8th, 2021

The Weekly Briefing – March 8th, 2021

In This Week’s Brief:

  • Jobs Report Suggests Recovery is Picking Up Some Momentum
  • Market Spotlight: Houston Economy and Multifamily Market Largely Holding Up
  • Texas and California Home to Eight of the 10 Fastest Growing County Economies Last Cycle

Jobs Report Suggests Recovery is Picking Up Some Momentum

The labor market made its strongest showing since last fall, adding 379,000 net new jobs during February while the January total was revised upward to 166,000 jobs created. The strongest activity last month occurred in leisure and hospitality, which increased payrolls by 355,000 jobs, partially reversing the setback suffered in December when the sector lost 498,000 jobs.

The jobs report builds on several favorable recent economic releases that when taken together suggest the recovery is picking up speed heading into the spring. The most recent retail sales and consumer expenditures reports also recorded meaningful improvements compared to the prior month.

The second round of stimulus payments, which were mostly distributed in January, have likely provided a boost to the recovery even though many households have mostly set them aside as savings. But the substantial deceleration in the spread of the coronavirus since the start of the year and loosened business restrictions in some states have likely played a role as well.

Despite the recent improvements, full economic recovery in the labor market remains a distant prospect. Nonfarm payrolls are down 9.5 million jobs compared to pre-pandemic figures, and the labor force participation rate was unchanged last month at 61.4%, 2.9 percentage points below pre-pandemic levels.

Nonfarm Payrolls & Labor Force Participation Rate

Market Spotlight: Houston Economy and Multifamily Market Largely Holding Up

The Houston economy and multifamily market have navigated the past year fairly well despite confronting the double shocks of the coronavirus outbreak and a slide in oil prices in spring 2020. As of end-2020, Houston nonfarm payrolls were down 4.4% YOY compared to a 6.1% YOY decline nationwide. The relative health of the labor market is more interesting given that the metro’s energy sector shed 14,000 jobs last year.

In the multifamily sector, rents have dipped slightly by -0.8% YOY to an average of $1,111 per unit. Meanwhile, the vacancy rate has ticked up 50 basis points to 6.9%, which is in line with Houston’s long-term historical average but higher than some other major markets. The number of new completions more than doubled last year compared to 2019, and net absorption nearly matched the prior year figure.

Some Houston submarkets, however, have fared better than others. The urban center has experienced some of the most severe effective rent and occupancy declines in part due to an ongoing wave of Class A deliveries that are offering concessions to support lease-up. The Woodlands and Memorial, where many oil companies are located, have also seen meaningful negative rent growth. In contrast, some suburban areas have managed to push rents higher during the pandemic.

Year-over-Year Effective Rent Growth by Submarket as of 4Q20

Texas and California Are Home to Eight of the 10 Fastest Growing County Economies Last Cycle

Texas and California dominate the list of large counties (100,000+ residents) with economies that grew at the fastest clip during the last business cycle. Midland, TX led the way with 12.2% annual increases as the county bounced back from a particularly sharp contraction during the GFC when oil prices plummeted. Growth in the other top-ten Texas counties is likely to be more sustainable as all four are located at the fast-expanding edges of either Dallas or Houston, which both continue to attract new businesses and residents.

Three Bay Area counties with a particularly large tech presence also rank in the top five. Santa Clara and San Mateo are respectively home to Facebook’s and Google’s global headquarters. And San Francisco has benefited in recent years from an influx of tech companies seeking to expand their urban footprint to better appeal to younger workers. Across the bay, Alameda County did not make the top ten but did rank among the top 15 percent of large counties with 3.7% annual economic growth.

The three California counties have been hit particularly hard by the pandemic with economic output in each falling approximately 4.0%, likely due to many tech workers decamping to other areas to work remotely. The Texan counties have experienced more limited disruption.

Fastest Growing Large-County Economies (2010-2019) & 2020 YOY Change


Disclosures and Disclaimers
This is a general analysis of the real estate market prepared by Bridge Investment Group LLC (“Bridge”) and is not related to any specific products or services of Bridge or any affiliate. Sources for statistics and other factual data included herein are maintained by Bridge Research. Such data has not been verified by Bridge and we can give no assurance that it is accurate or complete. Statements contained herein that are nonfactual constitute opinions of Bridge, which are subject to change. Financial projections contained herein are estimates only and are based on assumptions, including assumptions regarding future rent growth, the availability and cost of financing, changes in market capitalization rates, and various micro- and macro-economic trends. No assurance can be given that either the projections or the assumptions will prove to be accurate. Investment in real estate involves substantial risk of loss.
This analysis contains various forward-looking statements that are not historical in nature. You are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this presentation. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements and we cannot guarantee future results or the successful implementation of the strategies discussed in this presentation. We are under no duty to update any of the forward-looking statements after the date of this presentation to conform these statements to actual results. Certain information contained herein has been obtained from published sources, agencies of the U.S. government and from third-parties, including without limitation, market forecasts, market research, publicly available information and industry publications. Although such information is believed to be reliable for the purposes used herein, Bridge does not assume any responsibility for the accuracy or completeness of such information. Similarly, forecasts or market research, while believed to be reliable, have not been independently verified and Bridge does not make any representation as to the accuracy or completeness of such information. All information is provided on an “as is” basis only. By using this information, the reader agrees that Bridge shall not have any liability for the accuracy of the information contained herein, for delays or omissions therein, or for any results based on your use of the information which are not consistent with your objectives. Without limiting the foregoing disclaimers, the information provided herein is not guaranteed to be accurate or complete, nor does Bridge take responsibility for it. The information contained herein has not been audited and Bridge does not guarantee its suitability for any purpose. All information is subject to change and/or withdrawal at any time without notice. Certain information included herein may refer to published indices. Indices that purport to present performance of certain markets or the performance of certain asset classes or asset managers may actually present performance that materially differs from the overall performance of such markets, asset classes or asset managers.
Past performance is not a reliable indicator of future results and should not be the sole factor of consideration when selecting a product or strategy. Any research in this document has been procured and may have been acted on by Bridge for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of Bridge or any of its affiliates and no assurances are made as to their accuracy.
This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any Bridge funds and has not been prepared in connection with any such offer.
Copyright 2021, Bridge Investment Group LLC. “Bridge Investment Group” and certain logos contained herein are trademarks owned by Bridge.