Just read a jobs reports in the NYT and the headline made me feel good and then the article left me confused. Listen to today’s podcast to see if Bob & Jan can make sense of it all!
OK, so here’s the headline: U.S. Jobs Report for June Shows a Gain of 850,000, Better Than Expected. That’s great news, right? As I’ve heard before…..read on. While the article does state that 850,000 more people were hired, it also states unemployment rose to 5.9%. Reuters states that “employment is about 6.9 million jobs below its peak in February 2020”. They giveth and they taketh away.
So what does all this mean and how will it affect CRE? Basically, it means that we are still in a recession as far as full employment goes. We lost jobs due to the pandemic that have yet to be restored. That said, we are on a non-farm hiring uptick which bodes well for the coming months. NYT states that full employment should be reached by mid-2022. Obviously, a lot of the employment gains must have been in the hospitality sector what with bars, restaurants, hotels and travel opening back up. However, the article also states that some of those displaced hospitality workers have moved over to the industrial sector which is going gang-busters.
So here’s another quote from Reuters that was a real head-scratcher for me: “Construction payrolls contracted for the third straight month. Though the sector remains supported by robust demand for housing, scarcity of workers and expensive raw materials like framing lumber are hampering homebuilding”. I heard that one home builder has temporarily placed a hold on all new home orders for a year to a year and half due to inventory. Crazy, and wow, is this affecting CRE! We recently were working with a client who’s in the processing of moving to a new location. I’ve mentioned this example previously, but it bears repeating in this context. The landlord had promised turnkey construction where they would pay for the full project cost, but when they got quotes from GCs, the landlord re-traded the deal to a fixed allowance. Some contractors won’t guarantee their bids more than about 20 minutes!
Some labor shortages are expected to ease after schools reopen in the fall. I would imagine day care for the average family during the pandemic has been nothing short of scary. So, let’s get granular about what all this info means for CRE. As always, it depends on which sector of CRE you are referencing. Industrial sales and leasing are going through the roof, literally! Reference episode 58 where we discuss the impact of e-commerce on the industrial market. Distribution centers, warehouses, manufacturing, and light industrial are all booming. Whether owning or leasing, it’s a hot market and inventory is low. Office, not so much. Take a listen to episode 59 to see what I mean. While landlords are talking an optimistic game, the statistics don’t seem to support that. If you’re an owner, it’s a scary time unless you have large, secured, credited tenants. For tenants, it’s a good time to negotiate a lease – maybe not quite as good as a few months ago, but you should still be able to get a good deal for your company. Hospitality and retail – I’ll just say I’m glad we don’t work in those property types!!
Another quote from Reuters has me a tad concerned: “The unemployment rate rose to 5.9% from 5.8% in May. The jobless rate continued to be understated by people misclassifying themselves as being ’employed but absent from work’. Without this misclassification, the unemployment rate would have been 6.1% in June”. That doesn’t sound good. Many folks consider 4%-5% unemployment rate to be classified as “full-employment” so we are definitely still falling short of that – it was considered 6% when I was in college in the 80s. This is interesting to me because I keep hearing how many job openings there are and how difficult it is for employers to hire.
I wonder how many folks are employed part-time or as gig workers, possibly doing several jobs to equal one whole paycheck. Would they change their status if they could? I’ve read that as much as 40% of the people don’t want to go back to the jobs they had previously. They like the freedom they’ve had over the last 18 months and don’t want to give that up.
Makes you grateful to be self-employed, doesn’t it??
Bob Gibbons is a Real Estate Advisor & Tenant Advocate (also known as a tenant rep) with REATA Commercial Realty, Inc. which is a tenant advisory firm based in Plano, Texas. Bob serves companies in Plano, Frisco, McKinney, Allen, Richardson, Addison, Dallas and the surrounding areas and specializes in companies which lease or buy office and warehouse properties.