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Job openings hit new high since September 2007, helping office REITs

Brent Nyitray, CFA, MBA

The Job Openings and Labor Turnover (JOLT) report from the Bureau of Labor Statistics is a good forward indicator of the labor market

The Bureau of Labor Statistics (or BLS) compiles data from a random sample of private non-farm businesses. Job openings are one piece of the report. The other is hires versus separations. For a position to be considered as a job opening, the business must have a specific position in mind, be ready to employ someone in the next 30 days, and be actively soliciting candidates for that position.

Job growth is the biggest driver of the economy right now, and the unemployment rate is driving the Fed’s quantitative easing program. The activity and decisions of the Fed are probably the biggest driver of returns in the financial sector right now.

4.5 million job openings in April, up 2.7% year-over-year

The 4.5 million job openings easily beat the street estimate of 4.1 million and is well above the 3.6 million average since BLS began compiling the index in 2000. This is the highest level since September 2007. In early 2000, the index peaked at close to 5.2 million, and it bottomed at 2.2 million in mid-2009. Most sectors reported increases in openings, although the government barely rose.

Implications for the office REITs

Economic strength and strong hiring will be good news for office REITs like Boston Properties (BXP), Highwoods (HIW), Kilroy (KRC), Vornado (VNO), and S.L. Green (SLG). They’re still dealing with relatively high office vacancy rates, and they want to see more evidence of hiring. That said, there has been very little office building over the past five years, so they could find themselves in a tight market if the economy accelerates better than expected.

The flip side of more hiring will be higher interest rates as the Fed exits quantitative easing and begins to raise short-term interest rates. This will raise the cost of borrowing for REITs and also affect their stock prices (since they trade on a yield basis, and increasing rates will affect them like they affect a bond). That said, any sort of meaningful recovery in employment will almost certainly begin to cause capacity constraints, which would be good for rental incomes.

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