Labor Shortages, Wage Increases Should Abate Next Year
Marcus & Millichap is predicting labor shortages and wage increases will continue to be headwinds for CRE this year, but they should abate a bit in 2022.
There is a 2.5 million worker shortage along with rising wages which will restrain service sector growth in commercial real estate along with hotels and senior housing, Marcus & Millichap Senior Vice President and National Director Research Services John Chang said in a video
However, beyond the immediate future conditions should be favorable for CRE.
The swift, decisive action by Congress and the Federal Reserve minimized the impact of the pandemic on most CRE types, asserted Chang.
He noted the nation has recovered 75% of the 22.8 million jobs lost to the pandemic with 4.7 million jobs having been created in 2021.
That 4.7 million makes this year the best year for job creation ever with four months still to go, he pointed out.
With a record 10.9 million job openings still out there and expanded unemployment benefits having ended September 6, he said labor force participation could accelerate with 85% ultimately filed that were lost during Covid-19.
Outlook for offices remains a wildcard as companies delay returning to offices, said Chang.
Recovery of restaurants, gyms and other businesses hit hard during the pandemic will be bumpy, but he noted multi-tenant retail vacancy rates only increased by 90 basis points to 6.6% and current absorption should continue into next year.
He said strong consumer spending is helping retail recovery.
Apartment sector holding up well with the vacancy rate continuing at a healthy 3.8% in the second quarter and few tenants have fallen behind in their rent during Covid-19.
Industrial properties were largely unscathed by the pandemic with the sector getting an increase from online sales.
This summer Chang pointed out that the shortage of labor also weighs on the development of all real estate types.
In construction, for instance, builders are competing for a limited pool of talent, which is causing wages to rise. “As of July, average hourly earnings were growing at 4%—about one and a half times the normal rate,” Chang said. “That puts upward pressure on inflation and not the transitory type. For July, headline inflation held steady of 5.3% while core inflation, which doesn’t include food or fuel costs, actually eased a bit to 4.2%.”
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