The Azucena Take: Investment Real Estate and the Labor Market

With all the focus on interest rates and a probable recession, little attention has been given to the current labor market. When there has been some attention, it's regarding the mass layoffs or how the strong numbers are fueling inflation. Both of these are the wrong things to be focused on and the coverage has been inaccurate. 

For commercial real estate investors, the labor market plays a major role in how their holdings perform and how to plan for the future. That is why they need to be focused on the numbers and not the headlines. That is why it helps to know what is actually going on in the market right now.

Mass Layoffs

Let's get obvious out of the way. Yes, many major companies are having mass layoffs and that scares investors. No, it's not because they are underperforming or they are preparing for a possible recession. 

For most companies; a lot of the layoffs are in roles that are no longer needed. Many of those let go were brought in during 2020 for tasks needed during the pandemic. With priorities changing, these roles are no longer needed. This is more true when you realize that the majority of the layoffs have been roles related to IT, HR, digital storefronts, and digital events. 

Of course; there are some exceptions with some companies underperforming and others having a change in leadership. Overall, most major companies are just shifting their priorities. 

Trends in the Labor Market

Also overlooked in all the discussion is who is hiring. While attention has been focused on the industry titans, the numbers say differently. 

As of September 2022, 51% of all job openings are in businesses with 50 or fewer employees. Meanwhile, only 10% of openings are in companies with 1,000+ employees. These numbers are surprising given that companies with under 50 employees only make up about 28% of the labor force. This means that small businesses are growing rapidly. 

In regards to the quality of talent, there is a discrepancy. Larger companies are more likely to nab talent that has experience and education. Meanwhile; small companies have been struggling to find quality talent or employees (depending on the business). In between; mid-sized businesses have been losing out to the titans and the small shops. 

For real estate investors, it all depends on their holdings. While urban offices have taken a hit, suburban offices have grown in demand. This is due to small companies wanting to be based outside the urban core and needing little office space as possible.  The same concept also applies to retail space as those in desired areas (outside malls and the urban core) have been booming.

What it Means for Investors?

The big takeaway for investors should be that a strong labor market is good for the real estate market. Some properties have seen a boom while others are starting to cool down. There might be challenges going into 2023 but a smart investor should be planning for everything starting now. 

The Azucena Take provides an inside look into the investment real estate market using the research done and data collected by Marcus & Millichap