Labor Trends Impacting Commercial Real Estate

There’s a massive shortage of available workers between the ages of 18 through 64 happening today, a trend that is causing company CEOs sleeplessness and will ultimately affect …

There’s a massive shortage of available workers between the ages of 18 through 64 happening today, a trend that is causing company CEOs sleeplessness and will ultimately affect where prime offices will be located by 2030.

According to a recently released Cushman & Wakefield report, “Human Capital: The War for Talent and its Effect on Real Estate,” current demographics trends will dramatically affect all segments of real estate during the next two decades.

For the past decade, about two million people aged 18-64 entered the U.S. workforce on an annual basis. Today, however, the growth in the workforce of people in that age range has dropped dramatically, to roughly 750,000. By 2020, that number will shrink to about 250,000 people, according to the report. “People over 65 years old are leaving the workforce much quicker than they are being replaced,” says Rick Cleveland, managing director of research and strategy with Cushman & Wakefield.

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Concern about the availability of human capital was the most often listed challenge by CEOs in a recent survey by The Conference Board, a New York City-based non-profit business research organization. Recruiting and retaining the most talented workers typically represents the biggest cost for an office-based firm, Cleveland notes. Salaries and associated costs can account for more than half of all expenses, he says, and getting the labor strategy right is now a critical factor in making real estate location and office size decisions.

On the move

This trend has pushed many companies to either move headquarters or open satellite offices in 24-7 cities that attract the Millennials. Technology firms have been the most aggressive in going after these workers, their movements in major cities such as San Francisco and New York creating new sub-markets. Rents in Midtown South in New York City, River North in Chicago and East SoMa in San Francisco are at all-time highs, according to the Cushman & Wakefield report. Walkability has been a major factor cited by today’s job seekers in rating an office’s attractiveness.

The more innovation potential a market has, the better chance of growth, according to Cleveland. The U.S. Department of Commerce uses a methodology for assessing innovation capability based on several factors, including high-tech job availability, education, venture capital investment and even average patents issued. Not surprisingly, Silicon Valley and San Francisco top the list, but other markets also rank high, including Boston and Seattle. Smaller markets that have made the list, partially due to significantly lower rents, include Austin, Texas; central New Jersey; Fairfield County, Conn.; Raleigh/Durham, N.C. and Minneapolis.

“Many cities are trying to gain high tech workers with ‘corridors’ and other small-business start-up incubators, but it really doesn’t take the place of what the Millennials want, which is access to alternative transportation and elements of a 24-7 lifestyle,” Cleveland says. “CEOs who want to capitalize early on this war for talent, who want to be cautious of real estate cost, should look at these smaller markets where they don’t have to compromise talent for high rents.”

This article was republished with permission from National Real Estate Investor.


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