“Flipping burgers is not beneath your dignity. Your grandparents had a different word for burger flipping; they called it opportunity.”
– Charles Sykes
As I have preached many times, employment is the key component to real estate values (more people moving in than out and being employed). On the positive front for San Diego, unemployment has dropped to 6.9% in March from 7% in February and below the 8.4% of last year. Leisure and hospitality had the largest month over month gain adding 3400 jobs, most of the growth was in food services and drinking places. Education and health services gained 2400 jobs with health care contributing more than half. Other significant gains came from Government (2100) and construction (2000).
On the surface this all sounds good. Nationwide we have created approximately 4 million jobs in the last 5 years. However, if we look closely, you will see that the number of part time jobs has also increased by 4 million. Because part time jobs are included in the unemployment numbers, this means almost all job created were part time. These are mostly minimum wage jobs (like leisure, hospitality, food service – see above). Unfortunately, these jobs don’t support a living and do little to help overall growth in the market (thus why we feel like this is a slow recovery).
With this state of unemployment, there is little real income growth. Without discretionary cash flow, it begs the question as to where the fuel will come from. Beyond consumers taking on more debt, what will drive demand to produce sufficient top-line economic growth (remember higher gross sales means higher rent, equals greater real estate values).
As liquidity from the Fed comes to a screeching halt, the economy is left to stand on its own. We now need to grow our economy out of this malaise, no more financial engineering. In short, we need good business practices not Fed policies.
Speaking of business practices, there is a lot going on in the real estate world which we will soon see on the street. Albertson’s has acquired Safeway (Vons in SD) – watch for potential store closures and new tenants attempting to get into the market. Amazon has announced its sales have dropped 10% in states where it now has to collect sales tax (24% drop on items over $300). Interestingly those states only saw a 2% rise in sales from the bricks and mortar retailers. Radio Shack is undergoing a huge downsizing and may not survive. Office Depot and Staples are moving to smaller stores (maybe they could take the Radio Shacks?). The rumor is that Amazon might be looking at the Sears/K-mart conglomerate to open brick and mortar stores. Ground breaking should start soon for the Cross-Border airport bridge. Soon you will be able to park in San Diego and arrive or depart in Tijuana. You will be able to avoid lengthy border waits and have access to another airport in San Diego.
With more people covered by health insurance, there is a broader demand for medical services. Hospital systems are expanding their campuses and private healthcare is moving closer to its patients, making shopping center space a natural fit. The other trend to watch is large hospital systems moving into the insurance field. The trend is to an “integrated delivery system.” Insurance companies will be buying hospital systems and vice versa. Some refer to this as the “Kaiserfaction” of healthcare.
On the good news front, recent business surveys in San Diego show small business owners to be more upbeat. American Express reports that small business optimism is at a five year high. The San Diego County Business Forecast reached all time highs with the most important stat being over half of business owners expected to hire in the next three months.
In local real estate markets in the first quarter, office had a positive net absorption with slight increases to rents. Industrial rents were flat but still experienced positive absorption. Retail was the case of the have’s and have not’s. Premium markets have vacancies below 3% and above average rents. The others markets 7-10%. vacancy with struggling rent (contributing to an average market vacancy of 6.4%).
So, as you leave your part time job and walk across the bridge to Mexico to fly to another country to get you healthcare, you can be sure that the sun is still shining in San Diego! I hope you enjoy this month’s story…
The Four Cats
Four men were bragging about how smart their cats were.
The first man was an Engineer,
The second man was an Accountant,
The third man was a Chemist, and
The fourth man was a Government employee.
To show off, the Engineer called his cat, “T-square, do your stuff.” T-square pranced over to the desk, took out some paper and pen and promptly drew a circle, a square, and a triangle. Everyone agreed that was pretty smart.
But the Accountant said his cat cold do better. He called his cat and said “Spreadsheet, do your stuff.” Spreadsheet went out to the kitchen and returned with a dozen cookies. He divided them into 4 equal piles of 3 cookies. Everyone agreed that was good.
But the Chemist said his cat could do better. He called his cat and said, “Measure, do your stuff.” Measure got up, walked to the fridge, took out a quart of milk, got a 10 ounce glass from the cupboard and poured exactly 8 ounces without spilling a drop into the glass. Everyone agreed that was pretty good.
Then the three men turned to the Government Employee and said, “What can your cat do?” The Government Employee called his cat and said, “Coffeebreak, do our stuff.” Coffeebreak jumped to his feet….
Ate the cookies…..
Drank the milk…..
Pooped on the paper…..
Had sex with the other three cats…..
Claimed he injured his back while doing so…..
Filed a grievance report for unsafe working conditions…..
Put in for Workers Compensation…..
And went home for the rest of the day on sick leave…..
AND THAT, MY FRIEND IS WHY EVERYONE WANTS TO WORK FOR THE GOVERNMENT!!
