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. Continue reading »

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