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The Impact of Labor Shortages on Commercial Real Estate

“Labor Shortage” is the new buzzword of 2021, and it’s one that is causing significant challenges not only to employers but also to the overall resurgence of the global economy.

The US economy added 850,000 jobs in June, signaling that the job market has recovered over half of the jobs lost in March and April of 2020 as a result of COVID-19. Sounds like great news, right?

If we look at the other side of the coin, we see fewer positive numbers. The labor force participation rate is holding steady at 61.6 percent, meaning many Americans are still unable or unwilling to return to the workforce. As of April, there were an estimated 8 million job openings across the US and 9.3 million unemployed workers, highlighting the disconnect between the labor force and the employment market.

The employment gap isn’t specific to one industry or another; it’s a problem impacting business owners across all sectors, forcing many to open at reduced capacity with reduced hours, or offer higher wages and signing bonuses to attract workers.

In the hospitality sector, hotels are limiting occupancy because they don’t have the cleaning staff to clean all the rooms, and restaurants are closing one or two days a week to give their wait staff and cooks a break. In the construction industry, builders have raised rates and extended timelines in order to offer higher wages to attract workers. In the industrial sector, the supply chain has been slowed due to a shortage of truckers and distribution center workers.

All of these shortages impacting business owners ultimately impacts commercial real estate and those interested in investing. As employers face the reality of increasing wages to continue operating their businesses, this increase may be coupled with a rise in inflation rates which means the Federal Reserve may be forced to allow interest rates to rise.

For those planning to acquire an investment property or those already in the process of an acquisition, it may be wise to move quickly to secure financing. In order to continue nationwide economic recovery, there needs to be a balance between the labor market and the employment market, and until that balance is reached, low interest rates could be on the chopping block.

Justin Langlois, CCIM is a Commercial Real Estate Investment Advisor with Stirling Properties servicing Baton Rouge, Louisiana and surrounding markets. Please reach out to Justin to discuss your real estate investment strategies.

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