Many hotels and senior living facilities are operating at partial capacity because they can’t hire enough people.
The labor shortage will be one of the greatest challenges for the commercial real estate industry and the economy as a whole heading into 2022, presenting a substantial headwind for the overall recovery.
According to John Chang, senior vice president and director of research services at Marcus & Millichap, there are currently about 10.9 million job openings nationwide, with only about 6.5 million people looking for work. And in turn, “the labor shortage is slowing economic growth because jobs can’t be filled and businesses are reducing their services,” Chang said. “That means they’re creating less economic growth than they would if they were fully staffed.”
The future of the office sector is also tied to the labor shortage, Chang says, noting that companies can’t push for a full return to the office because some employees will leave.
“There are a lot of available jobs and some people prefer to work from home, sometimes from a completely different city,” he said. “Companies simply lack the leverage to require employees to return to the office.
Chang says attempts to blame government stimulus and enhanced unemployment benefits for the shortage are misplaced. Rather, he said, 2.4 million more people than normal retired during the pandemic, a significant increase over pre-COVID figures. The labor force was further reduced by 1.3 million people who left their jobs to care for others, and international net migration into the US from other countries was down 77% over 2016 levels.
So what does this mean for the CRE markets? Chang says the two sectors feeling the most effect of the labor shortage, hotels and seniors housing, will continue to endure significant staffing issues. Many are operating at partial capacity because they can’t hire enough people.
He also says retail real estate will face a “modest headwind” as retailers choose not to expand due to hiring issues. Office properties in gateway urban core areas will also be impacted as companies struggle to lure people back to the office, which will in turn impact urban apartments.
But “even if the labor shortage carries on for three or four years, which is possible, there are still numerous compelling commercial real estate investment opportunities,” Chang said. “To see them, you need to look beyond the current labor shortage. Once you set your focus on the market dynamics five years from now, a whole new set of opportunities becomes apparent.”