The Azucena Take: Impact of the Labor Market on Commercial Real Estate

The labor market and the commercial real estate market are connected as the needs of one will also affect the other. This has been especially true during the pandemic and the recovery. 

As of August 2021: the labor market has recovered 75% of the jobs lost during the pandemic while adding 4.7 million jobs to the market. It's expected that another 1 million to 2 million jobs will be added by the end of the year. Despite this, employers in certain sectors are having trouble finding staff but this should change in the coming months.

To have a better understanding of how the correlation between the labor market and the commercial real estate market, it helps to examine each market individually. 

Apartments: This was one of the few property types to not be negatively impacted by the pandemic. The demand for apartments remained strong during the pandemic while it's estimated that between 2% to 4% of tenants have fallen behind on their lease. By 2021, demand continues to be strong with net absorption at 218K while the vacancy rate dropped to 3.8%.

Retail: This has been a toss-up as certain retail spaces took a massive hit while retail spending spiked during the pandemic. Movies, gyms, restaurants, and non-essential stores took a massive hit. As a result, many in these sectors also lost their job. 

The retail space is seeing a recovery due to the success of the vaccine and as governments lift economic restrictions. Since 2021, the vacancy rates of multi-tenant retail space have started to drop while retail spending has also jumped compared to 2020. However, finding staff has been an uphill battle. 

Industrial: This was one of the few property types to not be negatively impacted by the pandemic. When online shopping spiked during the pandemic, demand for industrial space also jumped. By 2021, that trend continues to go strong. This spike in demand also resulted in a hiring boom and a raise in pay. 

Office: Many major companies are having a hiring boom but the future of the office itself is unknown. This is due to companies having to push back their plans to bring people back to the office and backlash among workers against mandatory returns to the office. Employers are trying to find the right balance of keeping their teams together while accommodating a changing job market.

Hotels and Senior Housing: The hospitality along with the healthcare industry has been the most vulnerable. Even though the average pay has been on the rise, these sectors have been having trouble finding people. They already took a major hit during the pandemic while struggling to find staff during the recovery. 

Investors need to realize that the markets could change during the Fall and Winter seasons as life returns to normal. The economic boom is happening but one needs to study the trends and work with experts to prepare themselves for what is to come.