The Bottom Line: Slowed growth forces real estate and construction to finally tackle chronic labor challenges through tech-driven efficiency.
Margins Matter Now
The growth of the last decade masked a harsh reality: real estate and construction trail the overall economy in productivity growth. Despite promising advancements in tech, industry stakeholders have remained fixated on topline growth at all costs, and have continued to regress into broken labor models.
As the current contraction begins to strangle businesses, competition for customers and revenue will continue to cause margins to be competed away. Businesses will need to turn inward to find new ways to expand margins. The most innovative companies will find an edge in implementing tech to uncover inefficiency and improve productivity.
CRE transaction volume has fallen since a record high in 2021
Hiring Headaches
Operating expense inflation has affected all asset classes, but we'll focus on the most operationally intensive segment (read: labor-intensive) - housing.
- Multifamily OpEx has climbed a staggering 60% in 10 years. A recent surge in wages added fuel to the fire, contributing to the sharp 19% increase you see in the graph below from 2020 on.
- SFR expenses have seen a similar rise in recent years, growing 12.2% in one year alone.
- Wages are a big part of the story for both asset classes. Property manager salaries jumped 9.5% in 2021 and maintenance salaries rose even higher at 11.3%.
- Despite unprecedented increases in pay, retention in property management remains a major headache. Companies reported hiring as a top challenge in both 2022 and 2023 (operational efficiency took 1st place).
Paying Through the Roof
Inflation has rippled through all corners of the economy recently, but the construction industry may have been hit the hardest. Pandemic-era disruptions have subsided, but the labor shortage persists, and so does the rise in construction wages.
Despite offering higher pay, the industry faces falling productivity numbers, a trend that started 50 years ago. (That trend is probably no surprise if you've ever seen what this guy was capable of back in the 50's.)
Building a Fix
The #1 lever that these industries can pull to address their labor challenges, and the productivity gap, is technology. And the good news is there are a growing number of solutions that are solely focused on innovation in real estate and construction.
We can point to two solutions in our portfolio that directly address the challenges discussed here:
- One of our PortCo's, Dextall, has consolidated seven distinct trades into one streamlined process. Compared to legacy practices, Dextall's prefab wall system slashes installation timelines by 70%, and cuts on-site labor needs 20-fold. See how they do it in this clip.
- In the property management space, we're users of (and investors in) Residesk, who are leveraging LLMs to automate resident communications and menial tasks. Residesk not only saves each of our property managers 30+ hours every month, but creates actionable insights with the data collected.
One of Dextall's prefabricated wall panels
The Takeaways
- Real estate and construction lag the overall economy in productivity gains, in no small part because of labor challenges that were masked by the last decade's growth.
- As real estate and construction professionals begin to prioritize efficiency amid an economic contraction, they will turn to cutting-edge real estate technology (like Dextall and Residesk) to overcome their staffing challenges and close the productivity gap.
