A strong labor market is bolstering the outlook for U.S. commercial properties, especially as workers begin to return to the office, according to commercial real estate services company Marcus & Millichap.
The national unemployment rate dropped to 3.6% in March 2022, only 10 basis points above February 2020, the month before the COVID-19 pandemic flared up in the U.S. Businesses added 431,000 new employees last month.
It took only two years to reach nearly the same unemployment levels as pre-pandemic days. That’s a faster improvement than the prior two major recessions in the U.S., according to Marcus & Millichap. It took three years for unemployment to recover after the dot-com bust of the early 2000s and six years following the global financial crisis of the late 2000s.
In fact, the U.S. unemployment rate has only been this low (or lower) 6.3% of the time since January 1948. As the labor market recovers to pre-pandemic levels, some major employers are beginning to bring workers back to the office. These include Citigroup, BNY Mellon and Google, each of which brought back workers to the office in March. Even a hybrid return to the office is helping to prop up demand for office space.
Professional and business services; trade, transportation and utilities; information; and financial services all have higher employee headcounts now than before the pandemic. New workers in traditional office settings are making up for employees who are working exclusively at home, according to Marcus & Millichap.
While inflation and higher interest rates are worrying, commercial real estate investors seem to be bullish. Marcus & Millichap’s Investor Sentiment Index climbed to its highest level since 2015. A majority of investors cited their intent to acquire more commercial properties this year. In fact, investors anticipate growing their real estate portfolios by 12% in the second half of 2022.