Will massive retailer job cuts and emerging technology change the rental property market and who landlords should be renting to?
It’s 2017 and American retail establishments are cutting jobs (along with stores) left and right. Will these job cuts, along with advancements in technology, change the rental market and affect who landlords should be renting to? Technology has become so disruptive and fast moving that it is quickly, and significantly, changing the U.S. job market. Jobs are becoming remote. Customers are purchasing more online. If we can make our lives more simple by buying online, why not?! I literally have my groceries delivered to my door! Life happens differently, so what does it mean to real estate investors? How do these transformations influence the rental units?
Retailers in the United States are getting hit— Hard! There are still retailers out there who have been getting it right. Think Amazon and Zappos. Amazon is even broadening their scope to include a physical location. The consensus overall, though, is that online shopping yields to greater profits, and consumer’s propensity to purchase online has taken a huge bite out of the American retail model.
Bankrate.com stated that, seventeen major U.S. retailers will close (at least some of) their doors in 2017, including, but not limited to— Macy’s, Abercrombie & Fitch, Bebe, and Whole Foods. These cut-backs result in a lot less jobs, and that’s only the beginning of the story.
Technology’s Influence On Jobs
Factor in new technology and even more jobs are slated to become instinct. Just think of what autonomous vehicles will do to semi-truck and Uber drivers? Ouch. Mark Cuban has even said that tech jobs are not safe due to artificial intelligence. There are estimates out there that predict that 80 percent of jobs will die in the next few years. That is a huge number! So, what will that do to the housing market?
The Impact On Housing
It’s crucial that landlords stay abreast of trends like these. On the surface, if there is a decidedly large change in local employment, many tenants may struggle to live up to their lease agreements. The job landscape could simply mean they will run a month behind on rent until new work is secured. For others, it might be really tough for them to find new work that is local and matches their skill set.
How To Protect Yourself
If you choose to invest in a location where your only source of tenants are employed at the local grocery store, factory, or mall, you could be getting yourself into trouble. Underwrite conservatively on your deals to avoid overpaying. Do not buy a barely cash flow positive property! If you do this, you will have no room to increase rents. The moment you have to lower rent, you will be in a lot of trouble.
As a landlord, you might want to be a little more conservative on where you go to target renters. Also, take some time to track successful retailers and how they hired. Amazon announced that it will hire thousands of employees who can work from home. For landlords, who are a bit risk averse, always remember that when the economy takes a hit, the demand for affordable housing increases. So, get some properties— in the right areas— and select your renters carefully.