Construction Labor Shortage and Commercial Real Estate Projects

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Most commercial real estate professionals already know that there is a construction labor shortage in our country. This is true for major construction projects and renovations alike. There are a number of contributing factors which have caused this shortage which are likely to continue this shortage moving forward. As CRE professionals, this labor shortage has a material impact on construction deadlines, construction prices, and much more. 

 

Today, we will explore this topic by identifying the current state of the construction labor shortage, discuss what factors are causing the labor shortage, and finally how the construction labor issues are impacting and will continue to impact commercial real estate construction.

 

The Current State of the Construction Labor Shortage

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According to a new survey from the Associated General Contractors of America (AGC) and Autodesk, 80 percent of construction firms say they are having a hard time filling hourly and craft positions – which represent the bulk of the industry’s workforce. That same report suggests that labor shortages are the biggest threats to the construction industry. By extension, that’s a significant risk for the commercial real estate industry as well.

 

According to the US Bureau of Labor Statistics, there were 263,000 available jobs in the construction industry as of June 2018. The BLS predicts that the number of available jobs will increase over the next 10 years faster than average, with an above average median annual wage. Estimates place the total number of construction jobs at about 7.2 million.

 

Perhaps the most telling statistic is that 79 percent of construction companies are looking to hire new employees this year, but many are having a difficult time finding workers with the appropriate skills. To make matters worse, the disparity between the need for skilled construction workers and the availability of skilled construction workers is expected to increase moving forward.

 

What is Causing the Construction Labor Shortage?

The construction labor shortage would perhaps be more appropriately called a skilled construction labor shortage. Yet the reasons for the labor shortage are diverse. Some of the primary reasons for the current construction labor shortage include:

 

The industry is still recovering from 2008

 

The Great Recession of 2008 shook the commercial real estate world. A healthy construction industry in the early and mid 2000’s was suddenly placed into a depression where workers were laid off and construction projects were slowed or canceled altogether. The CRE industry has since recovered, but in the 10 plus years since 2008, the construction industry has been less appealing to prospective workers, leading to a shortage.

 

A decline in young workers with the necessary skills

A steady stream of young men and women graduated from technical schools and other training institutions ready to come into the construction workforce up until 2008. The Great Recession made construction a much less appealing option, which essentially slowed the flow of students and the flow of new employees needed for skilled positions.

 

The construction industry has grown and worker supply can’t catch up

Last but not least, it would have been difficult for construction companies to keep up with new hires even if there was the same level of skilled workers entering the workforce. Consider the labor statistics cited in the previous section regarding how many available jobs there are in construction. 

 

How the Labor Shortage Impacts Commercial Real Estate Construction

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Recent estimates suggest that ~70 percent of contractors are having difficulties meeting deadlines due to labor shortages. This simple fact causes a number of trickle down effects including:

 

  • Overall construction costs are increasing
  • Skilled laborers being asked to do more work
  • Investors are unhappy with contractors and construction crews
  • New projects are being rejected by construction crews
  • Many more

 

Labor costs make up about half of any building construction budget. Perhaps more importantly, no construction project can be completed on time and on budget without the appropriate construction crew. Construction labor shortages have a direct impact on the viability of commercial real estate construction projects for new construction and renovations alike. 

 

One of the keys for CRE professionals in the current construction is being realistic about costs and timelines. Labor shortages are a bottleneck for any construction project. They are even more of a detriment for large scale, commercial real estate projects.

 

Going Forward

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All of the available data points towards the construction labor shortage continuing in the immediate future. It is likely that the market will balance itself out as wages rise and skilled construction jobs become more appealing to younger generations. The question moving forward will become when the scales tip and the workforce begins to fill the available jobs. It is also worth noting that while many economists are predicting an imminent recession, most predictions also lean towards the next recession being much less impactful on the commercial real estate market

 

It is likely that a long term, stable construction labor demand will sort itself out. In the meantime, construction crews and commercial real estate investors alike will do well to understand how the labor shortage will impact construction costs, construction timelines, etc.

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