Experts from CBRE Labor Analytics offered insights on the future of site selection, employment centers and economic recovery.
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What can we learn from other recessions and recoveries?
The 2020 recession caused by COVID-19 is unique, but lessons can be learned from previous economic shocks. In the Global Financial Crisis (GFC), it took around 27 months to reach “rock bottom” in terms of job losses, and then a similar timeframe for employment to reach pre-recession levels. In 2020, the U.S. reached the unemployment trough in only three months, with recovery beginning almost immediately at a much quicker pace than in the GFC. This suggests that unemployment may rebound to pre-COVID levels much faster than any post-WWII recession.
What main cost considerations should clients take out of this labor market turmoil?
a. The COVID-19 era presents an opportunity for most employers to examine their labor pool and think through location strategy. Because payroll represents an average of 72% of operating expenses, small changes can yield a huge impact.
b. If an industry has softened, they may consider how to consolidate; if an industry has exploded (e.g., Industrial & Logistics), they will focus on how to sustain that strong demand.
c. Clients should identify markets that fit their new strategy, regardless of building size. In other words, consider talent and cost effectiveness before square footage.
COST OF LIVING:
How does cost of living impact employees’ decision making?
There is real opportunity for an employer to migrate some operations to secondary markets where the cost of living may be lower, meaning employees have greater buying power for their salary dollars. A company may have a better opportunity in those markets to position themselves as a preferred employer, which will enable them to attract quality talent. Those lower-cost markets will be less susceptible to wage pressure because employees will not feel the need to ask for significant raises with the same frequency in the near future.
POST-PANDEMIC MIGRATION TRENDS:
What data trends are early indicators of new location drivers? Have the dynamics of this pandemic shifted the focus on global location strategies?
We are seeing an acceleration of some trends. U.S. households are leaving high-cost, coastal cities for secondary markets with lower cost of living. As the effects of COVID-19 disrupt high-cost, tech-centric urban areas, some may consider relocating “back home” or to more affordable cities. One of the most lasting impacts of this pandemic may be the way it spreads a once-centralized tech workforce across the country. Some markets that are seeing an influx of relocations include Phoenix, Sacramento, Las Vegas, Atlanta, Austin and Nashville in the U.S. and several cities in Canada, which enjoys a lower cost of doing business. Preliminary trends indicate that employees with greater than 10 years of experience are more willing to relocate to lower-cost markets, while employees who are still early in their careers (0-3 years of experience) are more likely to want to be near the company headquarters and leadership, which offers mentoring and networking opportunities.
IMPACTS OF REMOTE WORK:
Remote work is definitely an element of location strategy now. Cost reductions and competitive wages seem to be main drivers. What about customer needs?
Hiring on a full national scale is expensive and time-consuming, so most employers will separate operational and customer-facing functions when developing a location strategy. Operational branches that are not customer-facing can be more readily moved to a lower-cost market, while client-facing businesses want to be co-located in the same markets as their customers where they can establish personal relationships, entertain clients or host them in the office.
Mark Seeley, Executive Vice President, CBRE
Kristin Sexton, Senior Vice President, CBRE
Kevin Major, Senior Director, Client Strategy & Consulting, CBRE
Vince Giovannini, Data Scientist, CBRE
Julie Whelan, Head of Global Occupier Thought Leadership, CBRE
Expert Roundtable Recording
Evolving Location Strategies in the COVID-19 Era
October 27, 2020