Commercial real estate is booming; second quarter data affirms it.
“Market confidence was high, with investor inquiries and newly launched deals recovering to near 2019-levels,” said Richard Barkham, Global Chief Economist for CBRE, in a statement sent to GlobeSt.com. “Going forward, while the delta variant and inflation concerns are seen as potential headwinds, we are yet to see this materialize in the investment market. Investors continue to be active and capital remains abundant for commercial real estate.”
The good news in short: There are more deals and even some improved news of prices on building commodities. Where things have been getting painful is in labor.
“Demand for labor is growing faster than supply is growing,” Ryan Severino, chief economist at JLL, tells GlobeSt.com.
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In a new report, Severino noted that as of June 2021, the number of open jobs in the US was 10.1 million, “a new record.” Put differently, that’s 7% of total employment from July.
There are cyclical and structural issues affecting labor availability. The end of extended unemployment benefits, vaccinations, and the return of school-age children to classrooms—some of the cyclical factors—will both encourage and enable people to return to work.
It’s such structural issues as a falling birthrate, retirement of baby boomers, and falling legal immigration into the US that offer thornier problems across all geographies, skill types, and industries.
“The structural side is a lot harder to change,” Severino continued telling GlobeSt.com. “The shortage of workers in the construction industry is one of the factors, in addition to other inputs to construction, having a limiting impact. We are going to lose a lot of workers from industries that a lot of people think are old economy jobs, but they’re incredibly important to the real estate market.”
According to the Bureau of Labor Statistic’s June 2021 JOLTS report, construction saw 358,000 hires, 365,000 job separations, and still 339,000 job openings. The industry simply can’t get enough people in to satisfy labor needs.
It’s part of commercial real estate’s new normal with a pair of negative impacts. One is that more people working would mean more consumers expanding the economy and needing places to live and do business.
The other is not enough people to construct buildings. “A lot of the people working in areas like construction and transportation and utilities and trades will be leaving the workforce,” Severino says. “There’s no cloning to fill those positions.”
The other option is greater productivity, which will require a change in attitudes and planning. Over the last 20 years in real estate, according to Severino, there was sufficient labor. Companies didn’t have to think about how to become more efficient and weren’t pushed to increase pay. “Now that the pendulum is swinging, labor is going to get more expensive,” he says. “It probably means companies will have to invest in technology to raise productivity.”
“Do you do prefab? Do you do 3D printing? Is there a way for robots to participate?” Severino asks. “Nobody spent serious time thinking how to automate this stuff and make it more productive.” Now they may not have another choice.