Employment Affects Commercial Industrial Real Estate

Commercial Property is directly affected by unemployment. There is a direct correlation between absorption of available inventory and the unemployment rate. If you want to anticipate market conditions in your market place then pay attention to the unemployment rate and absorption of commercial real estate. If you want to see how it works go to your local DOL and labor statistics then get local availability commercial industrial property numbers and tract how the absorption of inventory of commercial property and unemployment are directly affected.

For example in my market place on Long Island in 2007 the unemployment rate was 4.5% and we had a healthy absorption and firm pricing. Also worth noting was that the economy was producing about 450-500K jobs nationwide a month. Today (and starting 2008-2013) the unemployment rate been around 8% and the jobs created per month was 100k per month nationwide. (Locally it was a similar proportion). If you track absorption in my market you will see that there was more properties coming on the market then coming off during the same time period, therefore no absorption at all for almost 5 years (since 2008) and as result pricing has been declining.

With that said, with high unemployment as we have now, there is little or no need for new construction not until the existing inventory of excess space is absorbed. The longer we have high unemployment the longer it will take for buildings to sell or find a tenant. As a result pricing begins to suffer; also it gets harder to forecast leasing prices on long term leases. If you see the evidence in the unemployment rate begins to firm up over a period of time then maybe the market will show some consistent strength then more commercial industrial properties will start to move.

Then you can advise your seller that maybe he can be firm with his pricing or if you represent the buyer that now is the time to make the deal because there might be higher pricing in the near future. On the converse, if the trend for unemployment is still high then the market inventory will more than likely continue to rise. Then your advice to the seller would be to take the best deal he could make because you do not know when the next viable purchaser or tenant will be gracing your door step on his commercial industrial property.