Is There A Correlation Between The Great Resignation And CRE Activity?

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It’s no secret employers are struggling to retain labor amid the persistent Great Resignation.

The U.S. quit rate, or the number of people that left their jobs as a percentage of total employment, reached a record 2.9% in December 2021, according to a recent report by CBRE Group Inc. The firm found an average of 4 million workers quit per month in 2021, which is 18% above the monthly average from 2018 to 2019. But what impact — if any — are the decisions of the broader workforce having on commercial real estate decisions?

Traditional office-using sectors have seen fewer people quitting than, especially, the hospitality and retail industries. In fact, office-using industries accounted for 22% of quits in December 2021, which is down from the 2018-2019 average of 24%.

But the professional and business-services sector, which includes back-office functions, have seen higher quit rates since pre-pandemic levels. That could mean a disproportionate impact on call-center types of facilities, many of which have gone fully remote since the Covid-19 pandemic. That sector has also seen among the biggest wage gains by industry, growing 7% or more in the past three years, CBRE found.

With the ability to work remotely being cited as a highly sought-after perk among workers, companies are tasked with thinking strategically about not only HR policies around remote work, but their office space.

“That’s propelled much of the flight-to-quality trend happening before the pandemic, but that’s taken new focus as employers struggle to retain and attract workers, said Jessica Morin, head of U.S. office research at CBRE. “It’s spaces that really have adapted to the new purpose of office, which is drawing people in to connect with teams versus head’s-down work.”

Still, in nearly every survey conducted about what workers want in the current war for talent, the ability to work remotely comes out as a key priority across a broad range of industries. And, as the CBRE report noted, as more office-using employees return to physical workspaces on a more regular basis, turnover in those sectors could increase if people are unhappy with policies or in-person experiences, especially after two years of predominately remote work.

A recent report by New York-based job-search platform Hired found, in San Diego, only about 34% of software engineer jobs were local, with about 66% for remote jobs. Cities like Denver; Minneapolis; Austin, Texas; and Los Angeles had similar ratios of local versus remote jobs.

Is that translating to less office space? In many cases, yes, with several office brokers having told The Business Journals anecdotally that companies that’ve moved forward on lease deals are looking at a 20% smaller footprint, on average, in a new deal. But each company is evaluating its real estate differently.

CBRE’s current economic forecast is that U.S. office-market vacancy won’t return to its 30-year average — that being 15% of U.S. office space not leased — until 2026. The firm is predicting office rental rates will rebound to pre-pandemic levels by the third quarter of 2024.

CBRE found the industries with the highest quit rates were in accommodation and food services, and leisure and hospitality. Those are two sectors where employment was hit the hardest at the start of the pandemic.

“Involuntary separations happened in the retail and hospitality sectors,” said Vince Giovannini, data scientist at CBRE. “Never in our modern history did we have a complete stoppage in specific industries. By the time employment began ramping back up, lots of those workers had found jobs in other, more stable industries. It’s not clear what impact the quit rate and challenges to finding labor in industries like hospitality may have on their correlated commercial real estate sectors, such as hotels and retail. But it’s possible the challenge to hire or retain employees may have retail and restaurant operators becoming more conscience about where, and how, they add new locations.”

 

Source: SFBJ

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