The Azucena Take: September Job Growth and the Commercial Real Estate Market

If you have been following us for some time, then you know that the labor and commercial real estate markets are connected. The needs of one will also affect the other. This has been especially true during the pandemic and the recovery.

Despite most unemployment benefits ending, September saw the slowest job growth in 2021. Employers only added 194,000 personnel to payroll, falling below expectations. Reasons for the shortfall have been fears of the Delta variant and changes in the labor market. Business services, information, finance, and manufacturing saw the biggest staff gain in August and September. Meanwhile; hospitality failed to gain traction while retail took the biggest hit.

So how does this affect commercial real estate?

Gains in business services, information, and finance has been rewarding for investors of apartment properties. During 2021, demand has been strong with net absorption at 218K while the vacancy rate dropped to 3.8%. Gains in manufacturing and wholesale also mean growth for industrial space.

However, this gain for apartments has come at a loss for office investors. Everyone needs a place to call home, but most jobs that use an office have been replaced with the WFH approach. Even if companies want to return their staff back to the office, there is growing resistance from the employees.

The loss in retail and hospitality staff is also affecting retail space along with hotel properties. Because of the labor shortage, hotels are unable to operate at full capacity while restaurants are scaling back on hours due to the lack of staff.

The only takeaway is that those who have prepared themselves for this market are doing great while those who failed to plan accordingly are missing out. However, this will not last forever and smart investors should start planning for 2022.