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Are Skilled Labor Shortages killing Multifamily Deals?

Updated: Aug 24, 2020

NAI Wisinski Great Lakes | March 3, 2020

Are Skilled Labor Shortages Killing Multifamily Deals?

Multifamily has been a popular commercial real estate 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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