The Labor Market Remains a Worry for Commercial Real Estate

“As the U.S. economy reemerges on the other side of the 2020 recession, the U.S. labor market remains an area of concern for occupiers, investors and the commercial real estate (CRE) industry,” writes Cushman & Wakefield’s Rebecca Rockey. “Although the labor market is now well on its way to recovery, there remain significant challenges including labor supply-demand imbalances and a drop in labor force participation.” 

Global head of economic analysis and forecasting at Cushman & Wakefield, Rockey delves into these challenges in a new report, grouping them around five key trends. These include the following: 

Recovering After Severe Impact  

“The negative impact on the labor markets during the pandemic was sharp and severe. Since then, progress has been substantial yet incomplete. Urban cores and gateway markets were hit hardest but are on the mend, sometimes to a surprising degree. In addition, national retail employment has outperformed the broader labor market with the largest MSAs having fully recovered all lost retail jobs. An increase in demand for experiences and services is also driving rapid growth rates in the hardest hit parts of the labor market such as in the performing arts, bars, casinos, etc. “ 

Overcoming Labor Shortages & Skill Mismatches 

“Labor shortages are increasingly a concern, with the supply and demand of workers imbalanced and varying by industry and region. In fact, most industries have a ratio that is below its long-term average, indicating that the current labor supply-demand imbalance is more acute than usual. In some sectors such as construction, finance and the arts and entertainment industries, this metric is still not to pre-pandemic levels of tightness, but in other sectors such as manufacturing, food services and retail, labor markets appear much tighter than they were pre-COVID-19. Productivity gains have helped output keep up, and one-time bonuses have kept wage growth in check for most groups.” 

Where Have All the Workers Gone? 

“Unusual features of COVID-19 are contributing to the perception of worker shortages. This varies from above average levels of employed workers being absent from work to a still significant drop in labor force participation. Many people have opted for self-employment as well. Federal unemployment insurance programs balance a fine line between providing aid for unemployed in states that have poorer labor market outcomes and disincentivizing work in states with better ones. A growing level of job leavers is consistent with a rising quit rate, which reflects workers’ confidence in their labor market prospects. The sudden turnaround from last year is probably contributing to the difficulties companies are having in finding workers. Further, remote work is adding a new element of competition.” 

Navigating the Disconnect Between Labor and CRE Markets 

“For some property types, the outcomes in employment vary greatly from the fundamentals. This is particularly true for office, with employment outperforming the broader labor market and fundamentals remaining hard hit. Eds & Meds remains a resilient category in property but from an employment perspective this group of industries remains among the hardest hit. Retail has been surprisingly resilient across the board—with some caveats for certain markets and property subtypes—whereas for hospitality, employment was hit relatively harder than occupancy.” 

Identifying Categories That Are Thriving 

“Some categories are thriving across the board. Industrial, life sciences and technology jobs are outperforming, and demand for property for these tenants or investment in these categories has remained strong throughout the pandemic. In addition, despite an incomplete recovery in the labor market for nearly 90% of industrial-related jobs, the impact on industrial property markets has been minimal.”