Multifamily has been a popular commercial realestate sector for the past few years. Investor interest was high, new
developments were in the works in major cities throughout the country, and
vacancy rates were dwindling.
However, this positive outlook is starting to
experience opposite pressures. The rising construction costs that plagued the
industry in 2019 are still making it difficult and expensive to build new
multifamily developments.
But, it’s not only the high building costs
that are inhibiting new multifamily projects. It’s also a skilled labor
shortage within the construction industry. Developers and investors are having
a difficult time finding professional, experienced, and talented building teams
to construct their new projects.
So what does this mean for the CRE business?
Here’s what commercial real estate investors, developers, and property owners
should be watching for in the multifamily arena:
Skilled
Laborers are Far and Few in Between
The construction industry’s skilled labor shortage
is beginning to cause issues for commercial real estate’s multifamily arena.
But, it begs us all to question what exactly is causing the shortage.
According to industry experts, the current
labor shortage is being caused by a large wave of retirements within the
building industry. Many skilled construction professionals are coming of age
and making their exit - and it’s all happening at a time when they’re needed
more than ever.
Another reason why skilled labor is hard to
come by these days is the large number of laborers who took their leave during
the recession. When things got difficult, many skilled laborers chose not to
stick around. This decision still stands as a great loss for construction as a
whole.
While retirement and other fluctuations are
normal for every business, this current phase is not being balanced out by an
equal number of new skilled laborers hitting the scene. The volume of skilled
laborers exiting the construction industry is far greater than the addition of
new ones making their entrance.
This industry-wide uneven progression is
causing a large-scale shortage of skilled labor is making it difficult to get
new multifamily projects to move forward into the building and development
stages.
Attracting new laborers is imperative for both
the construction and multifamily industries in 2020.
Small
Markets Take the Biggest Hit
The widespread labor shortages are most
heavily impacting smaller markets around the country. When faced with
sky-rocketing building costs and skilled labor shortages, small local economies
are often unable to foot the bill for new multifamily developments.
Multifamily developments set in suburban
locations are already at a disadvantage as the local labor pools are smaller
than in big metros. The smaller the population of laborers, the more the
shortage is making an impact on the local scene’s multifamily markets.
Don’t
Lose Hope: Experts Say a Turnaround is Ahead
While the outlook may seem bleak, commercial
real estate experts are anticipating things to turn around in 2020. The
shortage of skilled labor is causing a need in the construction industry, which
means lots of opportunities for business.
It won’t be long for more skilled labor
companies to hit the scene and take advantage of the unfulfilled market.
Make sure to consider this 2020 CRE trend in
your multifamily deals and strategies.
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