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Commercial real estate executives have a lot to worry about these days. Inflation and rising interest rates, continued supply chain challenges and an unstable geopolitical environment have all but ensured a restless night’s sleep, but in the last 12 months, a new challenge has emerged to trump them all: a labor shortage.
For years, the commercial real estate industry has grappled with a dearth of construction labor, but now companies are finding fewer qualified professionals to fill internal positions and run operations at the property level.
The first signs of a problem came late last year. CREXi reported that more than two-thirds of commercial real estate companies were struggling to find sufficient workers, and the problem was rippling across sectors and geographic markets from the US to Europe. Economic challenges are, of course, part and parcel for any investment sector, but labor shortages are less common. Let’s examine.
This year, the Counselors of Real Estate ranked the labor shortage as number six on a list of the top 10 problems affecting commercial real estate, and that is likely because it impacts the industry in multiple ways.
First, commercial real estate companies are naturally affected by national employment trends simply because real estate houses businesses that need workers to operate. At present, there are twice as many job openings as there are workers to fill them in the US. The loss of workers is impacting every industry, but retail, manufacturing and hospitality have suffered the most extensive job losses, with 70%, 45% and 40%, respectively, of job openings going unfilled. When businesses struggle, so too do landlords.
But, CRE is also not exempt from this national problem. Both the financial activities sector and the professional and business services sector have an open job rate of 30%. In a survey from Commercial Property Executive, 50% of companies say that they are either significantly or moderately affected by the labor shortage, with only 25% of companies saying the labor shortage has had little to no impact on business operations. This is partially a geographic issue; commercial real estate companies are struggling to find workers in specific locations, but overall, there are simply not enough qualified candidates to go around.
In commercial real estate, both internal and external labor shortages are problematic, particularly for property owners and developers who rely on vast networks of workers to manage everything from internal functions to property operations to construction and maintenance.
A Perfect Storm
The labor shortage doesn’t have a single cause, but rather a perfect and pandemic-fueled storm of factors that all contributed to a fundamental change in how society thinks about work. This cultural phenomenon includes remote work, higher wage expectations, demand for corporate responsibility, low immigration levels and a healthy work-life balance.
Companies and industries that are not adhering to these guidelines are seeing a mass exit of workers, an unprecedented event that has become known as the Great Resignation. The US Department of Commerce estimates that 47 million people left their jobs last year in search of a better quality of life. Still, the department also suggests that this is only part of the story. In many industries, if qualified candidates filled all jobs, there would still be a labor deficit. Overall, there are 2.9 million fewer people in the workforce compared to February 2020.
The worker shortage has helped fuel a 4.7% year-over-year increase in wages, but with an inflation rate double that, it hasn’t helped attract workers back to the office. In the commercial real estate industry, companies report that wage expectations are one of the primary hindrances to filling job openings, particularly among entry-level workers; however, industry growth has been more impactful. Last year, commercial real estate investment volumes increased by 74% and demand flourished across several asset sectors as the market rapidly rebounded from the pandemic-triggered recession. The activity has required more professionals to manage deal volumes, leasing, property operations and project management—but the labor shortage has kept the industry from keeping up with its own growth.
Remote work is the last piece of the puzzle. Many workers now expect to work in a flexible environment, but unfortunately, real estate is not an industry easily adaptable to a work-from-home model. Commercial real estate professionals often need to be close to properties, development sites, clients or investment opportunities. In fact, 50% of CRE companies listed geographic challenges as the reason they struggle to fill open positions. Some companies are trying to adapt. The Commercial Property Executive survey found that 50% of companies are adopting remote work or focusing on creating a better work-life balance for employees as part of their recruiting efforts.
As companies acclimate to new worker expectations, technology adoption should be central to workplace strategy. Perhaps more importantly for today’s labor market, technology alleviates pain points and allows workers to focus on higher-value tasks. While communications technology, like Zoom and Google Meets, is important to connect coworkers and support remote collaboration, companies should be investing in advanced software programs that automate routine workflows, process and analyze data and manage schedules.
Northspyre is among technology companies alleviating workplace friction through AI and machine learning, taking tedious tasks off workers' plates and allowing them to focus on more rewarding, higher-value tasks. According to research from Deloitte, there is interest in automating workflows, but adoption has yet to take off. Currently, only half of workers have access to technologies that enhance performance—but this labor shortage could push it over the edge. There has never been a more immediate need to adopt technologies that support or even replace onerous work responsibilities.
There is optimism that the labor shortage is improving, and most professionals expect business conditions to recover over the next 12 months. That is excellent news for the industry, but this is surely only the beginning of a revolution in workplace culture. As companies adapt and workers return, commercial real estate technology will continue to be vital for companies to meet new expectations.
Tag(s): Real Estate Development
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