CCIM Feature

Economic Growth Gap

Fewer immigrants disproportionately affect commercial real estate and related industries.

Several economists specializing in the commercial real estate industry worry that if proposals to limit immigrants to the U.S. are enacted, they will affect economic growth. Typically, the cycle of the commercial real estate industry closely aligns with U.S. economic trends.

However, immigrants may have an even stronger impact on the U.S. commercial real estate industry than the overall U.S. economy. Foreign-born workers comprise about 17 percent of the U.S. labor force, but they fill 31 percent of buildings and grounds cleaning jobs and 25 percent of construction positions, according to Cushman & Wakefield.

“We have a shortage of talent, and immigration fills up the gap,” says Revathi Greenwood, head of research, Americas, at Cushman & Wakefield. 

Skilled Workers Gap

Currently, nearly 34 million legal immigrants live in the U.S., while other residents obtain green cards available to students and workers. Additionally, about 1 million unauthorized immigrants temporarily live and work in the U.S. through the Deferred Action for Childhood Arrivals and Temporary Protected Status programs, according to the Pew Research Center.

“If the 800,000 DACA recipients are deported, it may cost U.S. businesses about $3.4 billion,” Greenwood says. “Over the next decade, the economic effect on the U.S. economy is estimated at approximately $4.5 billion.”

Most U.S. immigrants arrive in the prime working ages, between 20 and 64, and contribute to the U.S. economy while spurring economic growth. While some fill low-wage jobs, others are well-educated and skilled in the science, technology, math, and engineering fields, where U.S. jobs are plentiful, according to K.C. Conway, CCIM Institute chief economist. Foreign-born workers comprise 22 percent of the jobs in science and engineering for the U.S., according to the U.S. Department of Labor.

“The U.S. has a skills gap in the STEM fields that reaches into the engineering and financial services industries,” Conway says. “For example, financial institutions increasingly have demand for skilled labor in mathematics and computer modeling for more robust stress testing and accounting compliance required for new regulations, such as the new FASB CECL [Current Expected Credit Loss] for banks. The STEM immigrant workforce is material to the U.S. economy, burgeoning engineering, robotics, and autonomous industries, as well as to the evolving commercial real estate industry, which will be disrupted by blockchain technology.”

Skilled immigrant workers help to drive demand for office space. Since 2000, the number of foreign-born workers employed in the U.S. has increased by 42 percent, according to Cushman & Wakefield. During that time frame, the fastest growing job categories have been management and professional occupations at 75 percent and service jobs at 59 percent.

Supplying the second highest number of U.S. work visas, the H-1B visa program provides educated talent to technology and service firms nationwide. In 2016, the H-1B program issued 24 percent of all temporary visas, or 180,057 highly skilled foreign workers, for the U.S. economy. According to Cushman & Wakefield, 50 percent of these visa holders live and work in five states: California; New York; Texas; New Jersey; and Illinois. 

While it remains unclear what, if any, immigration policy changes will be implemented, President Donald Trump's administration has announced support for the proposed RAISE Act, which seeks to restrict the number of refugees to 50,000; reduce total legal immigration during the next decade; and change how immigrants are prioritized and granted access to the U.S.

If changes lower the number of work visas available, fewer foreign-born workers in the U.S. also will create challenges for the commercial real estate industry to meet construction demand and supply other critical roles, according to Cushman & Wakefield.

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Economic Growth

Throughout U.S. history, immigrants have contributed to economic growth. “Just being objective, immigration is underappreciated in the U.S.,” says Ryan Severino, chief economist at JLL in Iselin, N.J. “In the next 10 to 30 years, first- and second-generation immigrants will drive the growth.”

The U.S. admitted about 85,000 refugees in 2016 compared to 53,716 in 2017, which is the lowest number since 2007. For 2018, refugee admissions have been capped at 45,000, the lowest number since Congress modernized the program in 1980 for those fleeing persecution from their home countries, according to the Pew Research Center.

In 2016, 137,893 foreign workers and their families received employment-based green cards. Proposed Senate legislation would replace the existing eligibility criteria for families, limiting green cards to parents and minor-aged children only, as well as eliminate green cards for immigrant investors who provide funding for commercial U.S. enterprises through the EB-5 program.

Lower skilled immigrants often fill jobs in hotels, construction, restaurants, and maintenance in office buildings, jobs which many Americans do not seek and are not automated easily, according to Severino.

“I am worried about limiting legal immigration,” he says. “About 30 percent of start-up companies are launched by immigrants. The net absorption in office space is slowing down, and we are running out of competently trained workers. Right now, we have 6 million unclaimed jobs in the U.S. Restricting legal immigration will only hurt U.S. economic growth.”

While many international students attend U.S. colleges and universities, their flow has begun to slow down. The number of newly arriving international students declined about 7 percent in fall 2017, with 45 percent of campuses reporting drops, according to a survey by the Institute of International Education.

“Lots of technology emanates from immigrants,” Severino says. “We need to continue to be a beacon to international students. Education and skills determine not only the success of the individual, but also the success of economies around the world.”

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Potential Labor Shortages

The hospitality and multifamily sectors heavily rely on immigrant labor. While hospitality is an obvious haven for immigrants in housekeeping and catering staff, property management added 90,000 jobs and grew by 14 percent during the last five years. Janitorial services for apartments rose by 13 percent and provided 125,000 more jobs during the last five years, according to the U.S. Bureau of Labor Statistics.

“These are strong growth rates for jobs in multifamily, and it's easy to add employees because the labor has been available,” says Barbara Denham, senior economist at Reis in the greater New York City area. “But supply needs to keep up with demand, and a loss of immigrants will affect the hospitality and multifamily markets. It will become more expensive moving forward to keep a steady supply of labor.”

However, she believes the effect overall on the commercial real estate industry will not happen overnight. “If immigration continues to be limited, we will feel it five years from now,” Denham says.

Agriculture indirectly affects aspects of commercial real estate. Immigrant labor comprises 41 percent of the agricultural workforce, according to Cushman & Wakefield. Grocers and restaurants depend on readily available and relatively inexpensive produce to thrive.

The lack of immigrant labor in the agricultural and retail sectors will affect the U.S. economy, according to Conway. Vertical farming is one solution being explored by Plenty, a California-based company. Retail is turning to automated checkout at Whole Foods and Amazon stores, while McDonald's is installing self-service kiosks to cope with the lack of immigrant and low-wage labor.

Immigration has some impact on every industry. Increasingly, businesses are turning to technology as a solution because they can't wait for Congress to figure it out, Conway says. That has unintended consequences on economic measures, such as the labor participation rate and state and local taxes.

Infrastructure Conundrum

While the construction industry has never fully recovered from shedding so many jobs during the Great Recession, the effect of three major hurricanes during 2017 has made the construction labor shortage more acute. In addition to Puerto Rico and parts of Florida and Texas directly hit by hurricanes, several major cities employ proportionately more construction workers, including New York City, Los Angeles, Miami, Washington, D.C., Chicago, and San Jose, Calif., according to the U.S. Department of Labor.

If labor shortages continue in construction, then wages and inflation will rise, according to Greenwood. A continuing influx of immigrants for construction jobs is critical to rebuilding efforts and fixing the crumbling infrastructure for a variety of transportation needs.

“Commercial real estate is dependent on both physical and labor infrastructure,” Conway says. “The Amazon HQ2 search has been primarily about attaining the workforce it can no longer find on the West Coast and due to the uncertain immigration policy for Dreamers and the demand for those skilled in STEM fields.

“If we cannot import the STEM workforce that we so desperately need, industry will either find technology solutions in artificial intelligence or drones. Or it will relocate to hire graduates of urban STEM-focused universities.”

Restricting immigration will have a huge impact on the construction industry in large cities, which already have too few construction workers, according to Denham. “The availability of construction workers affects urban areas disproportionately, because immigrants traditionally enter the big cities first to find employment,” she says.

“Continued immigration is important to the U.S. economy,” Greenwood says. “Some 70 percent of immigrants are legal and of working age.” Without continuing a substantial influx of immigrants, the U.S. will experience labor shortages in skilled and unskilled jobs that affect the commercial real estate industry. It will affect wage growth and inflation if it continues, reverberating across the whole economy, according to Greenwood.

Bridging the Generation Gap

by Sara S. Patterson

As more people than ever turn 65 years old, the surge in retirees will slow the growth of workers in the U.S. In 2000, 2 million people turned 65; 3.5 million did in 2016; and 4 million will in 2021. Even with the higher rate of those over 65 working, U.S. economic growth will almost certainly remain low, according to John Burns Consulting.

“Younger people in Europe are coming to the U.S. because of the continuing recession in Spain, Italy, and Greece,” says K.C. Conway, CCIM chief economist. “There’s a lot of misconception about immigrants only coming from certain countries. We have many positions open in medical, science, and engineering that need highly educated employees from all over the world.”

STEM immigrant labor can fill these positions necessary for the U.S. economy and workforce. Also, they are primarily from the Gen X generation, where the U.S. has a deficit to replace the aging baby boomer generation. This STEM immigrant workforce will not adversely affect either the baby boomer or maturing millennial generation workforce, according to Conway.

The lingering effects of the Great Recession make the generational gap more acute. Older millennials are a decade behind in wage earnings, making baby boomers more dependent on the smaller population of Gen X, according to Conway.

“As a country, we need to look at areas needing highly skilled employees, and allow more skilled immigrants to enter the U.S. growth industries, such as technology,” Conway says. “For U.S. economic growth, more skilled workers are necessary.” U.S. Census figures show 61 million members of Gen X compared to 77 million baby boomers. The 16-million person population gap will resonate more strongly without an influx of skilled Gen X immigrants.

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Sara S. Patterson

Sara S. Patterson is former executive editor of Commercial Investment Real Estate.

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CIRE May/June 2018

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