Layoff announcements from industries spanning big tech to finance to real estate are spooking investors, according to one industry watcher — but there’s more to the story.
Google announced the layoff of 12,000 employees, while Salesforce and Amazon are each shedding 8,000 team members. And the trend is not limited to tech: banking, finance and real estate have also shed a considerable number of jobs over the last few months.
But according to Marcus & Millichap’s John Chang, context matters. In December, the US added 223,000 new jobs and the unemployment rate was 3.5%, a 50-year low. Even in the Bay Area, “the epicenter of the tech industry,” the December unemployment rate was just 2.1% in San Francisco and 2.3% in San Jose.
“To put that in perspective, the five-year average unemployment rate prior to the pandemic was 2.8% in San Francisco and 3.7% in San Jose,” Chang says. “So even if the unemployment rate in the Bay Area rises, it will still be lower than the historical norm.”
In addition, there are still 10.5 million job openings across the US, “way above” the historical average of 3 to 5 million openings.
“We have a significant labor shortage that’s making it hard to fill all the jobs,” Chang says. “I know the headlines can be scary, but when you dig into the data the economy is actually pretty solid.”
And here’s how that could impact CRE: ”If we manage to dodge the recession bullet or if the recession is really mild then the CRE outlook does get brighter,” Chang predicts. “Improving consumer sentiment should bolster apartment demand and stabilize vacancy levels despite the record number of new units coming to market. And industrial is in the same boat – there is lots of development but if the economy gets past the slump, that space could fill up.”
Space demand could also strengthen for retail, despite high-profile bankruptcy announcements by some retailers (which Chang says are “just a fraction of the story”). He also anticipates some gains in suburban and small city office space demand while demand for the urban core of major metros may still be very soft.
