**Can Weak Job Growth Benefit Commercial Real Estate?**
Recent reports from the Bureau of Labor Statistics (BLS) are painting a concerning picture of the U.S. labor market. Only 22,000 jobs were added to the economy in August, and earlier employment figures for June and July have been revised downward by a combined 21,000 jobs. Perhaps most significantly, the total number of jobs created between April 2024 and March 2025 was revised downward by a staggering 911,000.
Though these figures will be updated again before final data is released in February 2026, the weak performance is already raising red flags. “All these indicators are telling us that the U.S. economy is weaker than we thought,” said John Chang, Senior Vice President at Marcus & Millichap. “The combination of elevated uncertainty and heightened caution will likely continue to weigh on the employment market.” He noted that this could increase the risk of a recession within the next year — a risk now higher than many would have predicted just months ago.
**The Silver Lining?**
Despite challenges in the labor market, this economic uncertainty could actually provide a silver lining for commercial real estate (CRE). In a recently released Marcus & Millichap video titled “CRE at a Crossroads: Jobs, Rates and Market Liquidity,” Chang observed that softer employment figures might compel the Federal Reserve to maintain a focus on job creation. In line with that, the Fed cut the Effective Federal Fund Rate (EFFR) by a quarter point on September 17 — the first such cut since December 2024. The Fed also hinted at two additional cuts before the end of the year.
While the exact number of additional rate reductions remains to be seen, many believe that the Federal Reserve will ultimately cut the overnight rate by a total of 75 basis points before year’s end, bringing the rate to approximately 3.5%.
Such reductions typically place downward pressure on the 10-year Treasury yield, which is already hovering around 4%. Lower rates can improve investment dynamics, making more properties attractive to investors. “Lower rates will shift more assets into positive leverage territory and the underwriting starts to work,” Chang explained. “That suggests that deal flow and transactional liquidity could increase, as long as financing costs remain contained.”
**The Caveat**
However, Chang warned that the relationship between Federal Reserve rate cuts and Treasury yields is not always predictable. For example, when the Fed cut rates by 50 basis points in September 2024, Treasury rates actually rose. A similar pattern occurred after a 100 basis point cut at the end of that year, with the 10-year Treasury yield increasing from 3.7% to 4.6%.
Moreover, lower capital costs don’t automatically lead to higher property values or falling cap rates. Continued uncertainty surrounding federal policy and trade further complicates the short-term economic outlook — a period Chang described as “choppy.”
**Looking Ahead**
Despite the short-term volatility, the long-term outlook for CRE remains encouraging. A declining EFFR could help more well-priced assets clear the market. In addition, a slowdown in new construction projects may improve supply and demand fundamentals, which could lead to stronger occupancy levels over time.
“We are in a very fluid economic cycle and things can change quickly,” Chang cautioned. Nonetheless, for those with a long-term investment horizon, current market conditions could present meaningful opportunities.
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