CRE Job Market, Facing Cooldown, 'Like 2 A.M. In A Club'
While other industries bemoan the nationwide talent shortage, commercial real estate hiring managers face a cascade of additional challenges, including not only increased competition for workers, but also an uncertain market and a shifting meaning of what it means to be a broker.
All of these factors together, compounded by a steady stream of bad economic news, have injected a dose of caution into the formerly red-hot market for commercial real estate jobs. Required to make top-dollar offers to stay competitive, firms are holding positions open for longer or avoiding filling them altogether, creating a chilling effect.
“It’s like when the music goes off at 2 a.m. in a club,” CRE Recruiting founder and principal Allison Weiss said. “I hate that we’re in unprecedented times, and I’d like to never hear that phrase again.”
The economy-wide talent shortage had already impacted CRE hiring, Weiss said, with many firms feeling compensation had become artificially high.
CEL & Associates CEO Christopher Lee, whose firm closely monitors industry salary data and CRE compensation, told Bisnow earlier this week that “bottom line … employers are having to adjust to higher levels of cash compensation and increasing long-term expectations across the board.”
He still expects annual pay increases in 2022 within the 5%-7% range, with what he considers “mission-critical positions” seeing as much as 7%-9% raises.
That is, of course, if a prospective hire gets an offer. Weiss and others said earlier this week that the combination of anxiety over rate increases and a potentially prolonged slowdown has tempered hiring, and led many firms to slow down, seek out fewer new employees, and in effect, look forward to something of a correction in total labor costs.
It’s also impacting brokers in particular. Throughout the early years of the pandemic, especially the 2020 freeze in economic activity, there was growing sentiment that the brokerage model needed to evolve. It’s not clear that’s yet happened on a wide scale.
“The economics of brokerage just don’t work the same way that they used to,” Weiss said. “This is a model built on ‘60s and ‘70s economics that doesn't exist today. And I don’t see a lot of innovation happening.”
Beyond the executive and leadership ranks, brokerage roles and junior positions across CRE are poised to get hit hardest, especially if deal volume does significantly slow down in the second half of the year.
Timothy Hayes, executive director of AIR CRE, a broker organization in Southern California that’s predominantly industrial, hasn’t seen any indication of attrition in brokers yet. Membership has remained steady, and most are hanging in there. While there was talk of changing compensation during the early uncertainty of the pandemic, it’s not really discussed as much now, especially after a record-setting Q1 for industrial sales.
Weiss sees two significant issues potentially being exacerbated by any slowdown.
The demographics of the brokerage industry, featuring an oversized contingent of baby boomers, underscore the longstanding trouble in recruiting younger workers. That’s especially prevalent in brokerage positions, which typically run on commission and require months of networking, effort and gaining experience to close deals and make significant money. All of that favors those working for bigger firms.
In an era of rapidly rising inflation and cost of living, that really doesn’t pan out, she said.
JLL Chief Economist Ryan Severino said he’s seen more and more brokers take their skill sets and pursue other roles, to avoid being “pigeonholed” in certain roles.
Cresa Chicago Managing Principal Allen Rogoway said that while this moment can be a very dynamic market for brokers, especially if you’re established, and has been an extremely busy period for his firm, those starting out and trying to build their network have experienced challenges ramping up and starting a career. Cresa has been offering a more fixed compensation package to take some of the apprehension out of at-risk compensation.
“Everybody who’s a thoughtful potential hire is asking the same questions, ‘what’s your thoughts on the market, is it a good time to be getting into this?’” he said. “You can tell they’re all thinking about it.”
The job itself, some predict, will change rapidly. CEL’s Lee recently forecast that the role of broker is about to experience a significant shift due to larger economics and technological factors, with larger firms looking toward recurring revenue and advisory services for clients.
He estimates that “up to 50% of today’s brokers could be replaced by strategic advisers,” data and technology will increasingly play a larger role in client servicing, and specialty brokers will fill in many of the remaining niches.
“The labor market has stayed tight and gotten competitive, and everybody is in a war for talent,” JLL’s Severino said. “We’re certainly not immune from that. Unless the wheels really fall off, I think businesses understand the talent shortage is more structural than just a cyclical phenomenon associated with the pandemic. It’s a testament to the business that we do have positions we’re trying to fill.”
Taking the temperature of the labor market anytime between Memorial Day and Labor Day presents challenges, considering huge strategic decisions tend to get pushed to the fall. But the general sentiment of analysts, brokers and recruiters interviewed for this story suggested that anxiety had already curtailed opportunities, firms were taking steps to slow down new hiring, and any significant slowdown could have significant impact on the long-term recruitment of younger talent, especially brokers.
These shifts in the job market have taken place against a backdrop of declining CRE deal volume, which dropped more than 50% from a recent record of $347B in Q4 of 2021 to $172B in Q1 of this year. Many experts predict rising interest rates will dampen enthusiasm for deals going forward.
The foreshadowing of a more difficult job market on the horizon contrasts sharply with the optimism felt at the end of 2021 and early 2022. A Bisnow/SelectLeaders survey of 130 industry HR execs from February found many expected the year to bring more jobs, higher compensation, even additional benefits; more than half expected to hire more in 2022 than 2021. And in late 2021, industry experts argued that firms, stung by labor shortages, were gearing up to pay more.
Those predictions have generally held through the first half of 2022, especially in many of the hotter sectors in CRE, such as industrial, life sciences and multifamily.
But the job market is increasingly taking a conservative turn, said Kaitlin Kincaid, Keller Augusta senior managing director, with companies becoming more thoughtful about budgets, more choosy about roles and taking more time, especially when deciding on management and executive roles and specialty positions.
Jackson Lucas Managing Partner Chris Papa, who runs a CRE-focused recruiting firm, said that there’s increasing interest in debt and equity-focused roles, as well as a demand for asset managers: It’s vital to be important with your assets during a downturn.
“I feel the changes have been in the amount of hiring,” Building Careers President Carly Glova said. “Teams are looking at whether they really need to hire someone.”
It’s unclear yet how deep of a downturn the market may face. Severino suggests the Federal Reserve may set the tempo based on future rate hikes. What seems clear is that uncertainty will remain for some time.
Weiss argues that many companies are holding off making larger strategic shifts until some larger changes are made, especially when it comes to the midterm elections and larger national policy directions.
“Lots of firms are waiting to make decisions until they get a better sense of who is going to be driving the bus,” she said.