How Slowing Job Growth Will Impact CRE

Up and down, and up and down again. It seems as though the national job market has been moving back and forth like a pendulum this past year.

In February 2020, just as the coronavirus was beginning to rear its ugly head, the national unemployment rate was just 3.5 percent – a record low. As pandemic surged, many businesses were forced to close their doors. Just two months later, in April 2020, the unemployment rate had skyrocketed to 14.8 percent. More than 22 million jobs were lost during this time.

The tide has since turned, in large part due to widespread vaccination efforts that allowed businesses to reopen their doors to both employees and the public.

Today, the unemployment rate has dropped to just 5.2 percent. While this is still significantly higher than pre-pandemic levels, it is lower than the 5.9 percent historical average over the past two decades. The Federal Reserve is expecting this to drop even further, to 4.5 percent, by year end.

Yet not all industries are recovering at the same pace. The construction industry, for example, continues to struggle with labor shortages. Businesses in the retail and hospitality sectors also struggle to hire.

The commercial real estate industry is already feeling the impacts of this labor shortage.

  • Labor shortages are putting upward pressure on wages, particularly in the service industries, which in turn, has spurred inflation.

    Many restaurants and retailers have been forced to curtail their hours of operation or worse, close their doors due to prolonged staffing issues. These vacancies will prove difficult to fill. Unsurprisingly, the value of retail and hospitality REITs have been slashed.
  • Senior housing facilities, including but not limited to assisted living and memory care facilities, are finding it difficult to operate at full capacity amid staffing shortages.
  • Labor shortages in the construction industry have led to CRE project delays, slowed construction starts and overall higher construction costs. In some markets, real estate prices have achieved new record highs.

As noted by others, some workers have opted to sit on the sidelines, collecting enhanced unemployment benefits funded through the federal government’s CARES Act. In some cases, people started earning more on unemployment than what they have earned by returning to work. There were cost savings associated with staying home, as well, particularly for those with daycare-aged children.

The tide could be shifting, yet again.

Enhanced unemployment benefits are now being curtailed. In states where this has already happened, data indicates more people will re-enter the workforce. This is a good thing, overall, and cannot come soon enough for employers – particularly those in the hospitality, retail and construction sectors – looking to hire. Otherwise, we run the risk of inflation running rampant which will impede future economic growth and stability.


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