Presented by Beacon Economics
Welcome to The Regional Outlook, a forecast for five of California’s largest regional economies. Each quarter, find updated analysis that goes beyond the state and national level to present a snapshot of employment, home prices, consumer spending, personal income, and other leading economic indicators within key areas of the state. Visit your region of interest and subscribe for email delivery.
Rolling into the third quarter of 2018, Los Angeles County’s total nonfarm employment experienced the slowest growth of all California’s major metro areas. However, this is undoubtedly due to a tight labor market and marginal increases in the local labor force. The job growth that is happening is being led by sectors such as Leisure and Hospitality, which continue to thrive. Additionally, the County’s unemployment rate has held steady in recent months at historic lows. In other news, building permit activity for commercial real estate in Los Angeles County has performed well over the past year, with permit values increasing by over 100% year-over-year.
Slower Growth for LA Labor Market
Between August 2017 and August 2018, total nonfarm employment in Los Angeles County grew 1.4% to reach a total of 4.5 million jobs. The 64,400 jobs added over the year pushed the unemployment rate down from 4.8% to 4.5%. Comparatively, California’s unemployment rate fell from 4.6% to 4.2% over the same period.
Although Los Angeles County added more jobs in absolute terms, its annual employment growth was outpaced in percentage terms by the Inland Empire (3.5% or +51,000 jobs), which is currently the fastest growing region in Southern California. Elsewhere, San Diego County gained 23,900 jobs (+1.6%), coming in ahead of Orange County, which added 13,100 positions (+0.8%).
Among industries, Leisure and Hospitality added the largest number of jobs with a gain of 21,900 positions, an expansion of 4.2% from August 2017 to August 2018. The Information sector experienced the largest annual percentage growth at 5.9%, or 12,400 jobs. The Health Care sector also saw significant expansion with the addition of 15,700 jobs, representing 2.3% growth. On the other hand, the Wholesale Trade and Other Services sectors contracted by 1,800 (-0.8%) and 1,300 (-0.9%) jobs, respectively. The Management sector also saw a decrease in its employment base, losing 1,200 jobs (-2.0%).
Beacon Economics is forecasting the Los Angeles County unemployment rate to end the year at 4.3%, and to hold steady in the low 4% range in 2019. Total nonfarm employment will show little change from its recent trajectory, growing at a rate of between 1% and 1.4% through the end of this year and into 2019.
Heightened Non-Residential Real Estate Activity
Due to an increase in construction of commercial properties, the vacancy rate for Office space in Los Angeles County remained unchanged at 14.7 % from the second quarter of 2017 to the second quarter of 2018. During the same period, the average annual cost of rent for Office properties increased 3.0% to $38.18 per square foot, reflecting a rising demand.
Similarly, the Retail vacancy rate grew 0.4 percentage points to 6.7% while the average cost of rent edged up 1.6% to $32.85 per square foot. The average cost of rent for Warehouse/Distribution properties in Los Angeles County increased 5.1% to $7.61 per square foot. The Warehouse/Distribution vacancy rate also increased 0.5 percentage points to 5.1%.
Building permits issued for Office space construction in the second quarter of 2018 totaled $235 million. Permits issued for Retail properties in the second quarter totaled $174.7 million, reaching $371.9 million year-to-date. Permits issued for Warehouse/Distribution properties in the second quarter totaled approximately $32.8 million, down 14.5% compared to last year.
Overall, commercial building permits issued in the second quarter of 2018 in Los Angeles County totaled $560 million – a 100.5% increase year-over-year. By comparison, commercial permits issued in Orange County totaled $946.8 million, while commercial permits in San Diego County totaled $109.6 million.
** Los Angeles County refers to the Los Angeles-Long Beach-Glendale Metropolitan Division.