Businesses Are Back, But Hiring Isn’t. How Low Employment is Impacting Real Estate

The last year and a half has been an extremely challenging time for our country and the entire globe. The coronavirus pandemic claimed millions of lives, closed hundreds of thousands of businesses and left millions of Americans jobless. After months of downturn in the economy, hopes for a speedy recovery were high after COVID-19 vaccinations became widely available to citizens of the United States. However, despite the return of businesses, attitudes are inadequate. The Bureau of Labor Statistics (BLS) found that only 266,000 jobs were created in April 2021, leaving the unemployment rate at 6.1%, roughly the same as the previous month. Here’s what real estate investors need to know.

Where adjustments are made and where not

Leisure and hospitality industries, including bars, restaurants, retail stores and hotels, showed the highest recovery rate of any economic sector, creating 54,400 new jobs in April. In restaurants and bars, two of the industries hardest hit by the pandemic, employment rose 68% above pandemic lows.

For other industries, however, the news is not so good. All other sectors have fallen flat or lost jobs in the past two months. Concerns about gas shortages have increased in recent weeks due to the shortage of semiconductor chips, a key component in automotive production. This resulted in companies laying off 27,000 employees last month. High construction costs and material shortages also lead to stalled construction work, which is urgently needed to compensate for the current housing shortage.

Manufacturing bottlenecks and high construction costs are only part of the problem. Reports at the national level show a lack of interest in job vacancies. Some say the blame lies in oversized unemployment policies that continue to provide additional unemployment benefits of $ 300 per month. In response, some states are starting to change their unemployment benefits. For example, Montana gives a $ 1,200 bonus to those who take on work rather than those who remain unemployed.

How this will affect property investors

If you consider that 9.8 million people are still unemployed in our country, 266,000 is hardly a drop in the ocean. The BLS continues to lower estimates for new jobs, which means there could be long-term trends that prohibit the return of the much sought-after and needed jobs. The success and sustainability of our economy depend on the return of employment. When people are busy, money moves in the open market and companies can operate as intended.

A shortage of truck drivers affects not only gas prices and availability, but also the delivery of products related to e-commerce, groceries and other important components of our economy that ultimately affect all sectors of the economy, including retail, restaurants and hotels. It is positive to see jobs returning in some of the hardest hit sectors of commercial real estate, including hotels and retail, but long-term trends in product and manufacturing shortages could pose a problem for investors across the board.

It is a good idea for investors to take advantage of the current momentum, especially as traction is increasing in your potential market. But don’t let your guard down. Investors should always be prepared for stalled performance, higher vacancies, or a drop in rents or prices. Having enough cash to maintain debt goes a long way if the recovery does not come as quickly as hoped.