The Azucena Take: Labor Shortage and its Impact on Investment Real Estate Pt. 2

We once again would like to come back to the topic of the labor shortage and its impact on the commercial real estate market. The factors that are responsible for the labor shortage are debatable but the impact it’s having on the market is unquestionable. It will create a drag on the economy that will also contribute to the ongoing inflation problem we are seeing.

So how does the labor market look? As of August 2021, there are 10.1 million job openings (the highest in recorded US history) while 8.7 million people are unemployed. The number of job openings vs. people looking for work is at a difference of 1.4 million.

Because of this labor shortage, hotels are unable to operate at full capacity while senior housings have had to turn away new residents due to the lack of staff. At the same time, the lack of truckers is also creating a logistics problem for supply chains. Mixed in with the supply shortages has resulted in construction projects falling behind.

Despite these numbers and problems, many are looking at it as if the labor crisis is slowing down. Unemployment is currently at 5.4% and it’s slowly declining. While above what is ideal, it’s still low compared to the aftermath of the 2008 Crash. Analysts expect the number to drop even more when schools start to reopen, allowing parents to return to the workforce.

The impact it has on commercial real estate is both bad and good. It hurts investments in hotels and senior housing markets while the hit on supply chains limits the number of new properties that enter the market. Since most construction projects have fallen behind, the value of existing properties on the market has jumped.

For investors, the only major concern would be if the Federal Reserve begins to tighten monetary policies that would result in interest rates going up. It’s hard to say how likely this will happen but a smart investor should plan for all possible outcomes.