How Does Labor Shortage Impact CRE?

By Gail Kalinoski

Ryan Severino, JLL’s chief economist

Don’t be fooled by the recent headlines touting the national unemployment rate dropping to 3.9 percent in April following six months at 4.1 percent. A new research report by JLL states that despite the more encouraging economic news, a long-term labor shortage has reached a new high and is impacting the U.S. commercial real estate market.

As of January, there were 6.3 million jobs in the United States that were unfilled, up 16 percent from 2017. In its report, Where Are All the Workers?, JLL notes the labor shortage impacts commercial real estate by lowering rents and increasing vacancy across property types.

“Commercial real estate correlates pretty well with the whole economy; their performances are linked. CRE would see a boost if open positions were filled, especially in the office market where fewer workers means less demand for space,” Ryan Severino, JLL’s chief economist and report author, said in JLL’s The Investor.

Severino said the impact of the shortage can be significant.

“If we don’t have enough workers for the demand that’s out there, it really limits the ability of the economy to grow in the short term,” he said.

Part of the problem is lack of skilled workers for the jobs that are being added at a rate ranging from 150,000 to 200,000 per month. About 40 percent of employers report struggling to fill open positions, according to recruitment firm Manpower Group. The JLL report notes jobs that require a lot of training or education like high-level office roles in IT and technology and skilled trades like electricians, welders and carpenters are among those hardest to fill. Potential solutions include improving access to education and training programs, making it easier for women to remain in or re-enter the workforce with more childcare offerings, flexible schedules and eliminating wage disparities and providing subsidies for housing, relocation and interview costs. Improving infrastructure to make it easier for those living outside metropolitan regions to travel for jobs that are increasingly offered in cities is also recommended.

How Filling Jobs Helps CRE

Easing the labor shortage will help both the nation’s economy and commercial real estate. The JLL report states at perfect employment:

• National office asking rent would rise by about 5 percent and vacancy would fall by roughly 2 percent.
• National industrial asking rent would rise about 4 percent and vacancy would drop about 1 percent.
• National apartment asking rent would jump 5 percent and vacancy would fall 1.5 percent.
• National retail asking rent would rise 3 percent and vacancy would decrease 1 percent.

Image courtesy of JLL