By Meghan Hall
The nation’s commercial real estate industry has grown leaps and bounds over the course of the last market cycle, but in many markets, that growth has been somewhat constrained by how quickly projects make their way through the approvals and construction processes. In the latter, sub-sector growth has been hugely impacted by one primary factor: labor. Those in the construction industry often note how difficult it can be to find qualified employees, and how those shortages extend project horizons by significant margins. However, employment in the construction industry is off to a good start in 2020 according to a recent market report released by Marcus & Millichap, with a hiring surge reported during the first month of January of this year.
The brokerage firm reported that employers added 225,000 jobs during the first month of the year, a strong start considering that, on average, 176,000 positions per month were created during 2019. However, when looking at previous years, 2018 and 2019 started off much the same way, meaning that although job growth in 2020 started off on a strong footing, the pace of employment growth will moderate throughout the year. While there is upward momentum in the market, 1.5 million new jobs will likely be created over the course of 2020.
The unemployment rate increased just slightly at the beginning of the year, rising to 3.6 percent and ending a 49-year low as an estimated 183,000 people re-entered the workforce after an extended absence. Additionally, the labor force participation rate increased to 63.4 percent, its highest level since June of 2013. This return is in part prompted by the needs of many companies, who in a time of very low unemployment, are encouraging many to come back to the workplace.
Wages also increased, with growth of average hourly earnings hitting an annual rate of 3.1 percent, at the beginning of the year. The mining, logging, retail trade and financial sectors posted the highest gains. Much of the increase, however, is due to higher minimum wages that took effect at the beginning of the year, as well as a huge need for both low- and high-skilled positions. Inflation is still less than two percent as well, meaning that the real value of wages is rising and giving consumers a little bit extra discretionary income each paycheck.
The construction sector itself created 44,000 new jobs, a significant increase when compared with the 12,000 positions that were added on a monthly basis in 2019. The jump in hiring, notes Marcus & Millichap, is likely due to strides in multifamily and office development, which are expected to reach market-cycle highs. Single-family developments are also contributing to this growth, with single-family home starts hitting their highest levels since the beginning of the Great Recession in 2008 and 2009.
Marcus & Millichap also notes one other disruptor to both construction-based and national employment: the newly emergent Coronavirus. While the report did not divulge specific predictions about how the illness could impact the commercial real estate industry, Marcus & Millichap anticipates that the most immediate impact of the virus on real estate will be in the hospitality sector, where wide-sweeping event cancellations and travel bans will impact demand. However, despite this trend, hotel occupancy and RevPAR are still at historic heights, giving the hospitality industry flexibility to withstand the potential impacts of coronavirus.
Marcus & Millichap did not respond to The Registry’s request for comment.