In today’s labor market, negotiating power is on the side of the laborer. There are 2 job openings for every unemployed person in the United States, heavily skewing the labor supply/demand curve in favor of the supply side. But that will be quickly coming to an end as that dislocation is being directly attacked by monetary policy.
Source: Bureau of Labor Statistics
The FED wants to reign in inflation by cooling the economy and the labor market (unemployment rate, etc) is one of the main barometers of how it will decide when it is done. We are already seeing this happen as costs of capital are going up, restraining growth, and causing companies to lay off workers and slow down on hiring. It hasn’t really hit yet, but it will, and once it does the power in the hiring process will revert back to the employer.
There’s no doubt that some jobs have seen a structural change and could remain in a telecommuting type model for the future, but I think that’s the minority and most employers want people back in office seats, they just can’t say it yet. But once the unemployment rate starts to climb and the job openings VS unemployed ratio goes back to an equilibrium, I think we will see a major trend reversal back to the office.
The pandemic and work from home trend took a serious bite out of office properties, so we are going into the coming downturn at already depressed levels. Given low valuations and the reversion of labor trends that will be coming, the climb back up in office property demand and valuations could far outperform other property types. I think the more impacted the property was from the pandemic and work from home, the more potential it has to spring back once the economy stabilizes once the Fed backs off.
We could see this start to play out by the end of the year as the FED is moving quickly to stabilize inflation and hit the brakes on the economy. If you were looking to take advantage of this potential trend reversal by acquiring office assets, it would make sense that as soon as the FED hit their policy goals it would be the time to buy.
