Executive Content Summary:

Rutherford International’s CRE 2022/23 Industry P.E.S.T. survey update identifies talent quality and rising wages as key concerns for the coming year. The report highlights the current threats for 2022, including rising capital asset prices (CAP rates), the Russia-Ukraine conflict, the growing federal deficit, currency devaluation, inflation, a K-shaped recovery, rising ten-year Treasury yields, the possibility of another COVID-19 wave, emerging contagions, and challenges related to remote and hybrid work. In 2023, the focus shifts to roles maintaining asset and portfolio value, with emerging threats in the political, capital access, and workplace/tenancy sectors. The report also discusses the “Great Malaise of Purpose,” reflecting on the changing attitudes towards work in the post-COVID era, and concludes with a note of cautious optimism for the real estate industry.

Article:

Rutherford International’s CRE 2022/23 Industry P.E.S.T. survey update highlights nine critical industry roles that are top priorities for respondents. The update examines the specific risk factors driving these concerns and how each threat aligns with corporate resourcing strategies for 2022 and 2023. Respondents identified talent quality (77%) and rising wages (66%) as key challenges influencing their threat assessments for the coming year. To address these concerns, particularly around securing high-quality talent and optimizing value, we’ve included an addendum article titled “A War for Quality Talent,” offering practical guidance on overcoming talent acquisition challenges.

“The very nature of an executive’s job is to make decisions about committing resources to the possibilities of tomorrow.” Charles Schwan – 2010

Crafting a strategic plan that anticipates tomorrow’s opportunities while navigating today’s political, economic, social, and technological challenges is no small feat for executive leadership teams. Despite the lingering effects of the post-COVID-19 era, there are enduring principles that strategic planners can leverage. By embracing incremental approaches, companies can steadily improve their performance and surpass the productivity average of their competitors.

One approach to gradual improvement is implementing a deliberate strategy to enhance the quality of talent within an organization. (A staggering 77% of survey respondents identify the lack of quality talent as a current or imminent threat through the end of 2023.) The talent pool for high-quality professionals remains limited—a challenge that is far from new. Exceptional talent has always been in short supply, a problem now exacerbated by waves of retirements and resignations further depleting an already scarce resource.

The well-known principle that 20% of a company’s employees drive 80% of its results highlights the importance of strategic hiring. By focusing on science-backed methods to consistently strengthen this top-performing 20%, businesses can build a foundation for long-term success and sustainability.

Quality Talent Has Always Been in Short Supply

Forbes Rutherford – 2020/22 – CRE PEST Analysis

CRE 2022/23 INDUSTRY P.E.S.T. UPDATE

Current & Emerging Threats in 2022

Our 2022/23 P.E.S.T. analysis highlights a key trend: senior executives anticipate that all levels of government will play a significant role in accessing Canada’s credit markets. This is expected to coincide with increases in personal and corporate taxes, development fees, and regulatory measures. In a competitive and inflationary market, government activity in securing capital will place additional pressure on asset repositioning and development proformas. Meanwhile, developers with shovel-ready projects and secured funding are moving quickly to accelerate progress throughout 2022.

Through 2022, development, construction, finance, accounting and investment professionals will be in demand.

Forbes Rutherford, CRE 2022/23 P.E.S.T Analysis

Most Active Positions in 2022

In 2022, roles in back-end development, construction, finance, project accounting, analytics, and investment/acquisition have seen the highest levels of activity.

Top of Mind Threats in 2022

The primary threats influencing resource planning and driving market uncertainty for the rest of 2022 are:

• Rising CAP Rates

35% of respondents predict an increase in CAP rates starting in the second half of 2022 (2H/22), continuing through the first half of 2023 (1H/23) before slightly tapering in the latter half of 2023 (2H/23).

• Russia-Ukraine Conflict

75% believe the ongoing conflict will fuel uncertainty throughout 2022 but expect conditions to stabilize rapidly by 1H/23.

• Rising Federal Deficit

77% of respondents lack confidence in the Canadian government’s ability to control its growing deficit during the survey period, signalling persistent fiscal concerns.

• Currency Devaluation

32% foresee the risk of currency devaluation emerging by the first half of 2023.

• Inflation

87% expect inflation to rise steadily through 2022, with a slight tapering in 2023. While hyperinflation is unlikely, 68% believe inflation will remain incremental.

• K-Shaped Recovery

45% project a K-shaped recovery over the survey period, while another 35% anticipate it will only become evident in 2023.

• Ten-Year Treasuries

68% of respondents anticipate a rise in ten-year Treasury yields throughout 2022.

• COVID-19: 6th Wave

The prospect of a 6th wave of COVID-19 lingers in the Canadian psyche, with 48% predicting its possibility between H2/22 and H1/23. Interestingly, a 6th wave was declared in Q1/22, months before this survey, further heightening public anxiety.

• Emergent Contagion

47% worry about the potential for another global contagion emerging by 2023, stoking fears of future health crises.

• Remote/Hybrid Work

Sixty percent believe remote and hybrid work arrangements will continue to pose challenges for industries throughout 2022, with impacts only beginning to ease in the second half of 2023.

Top of Mind Threats in 2022

• Russia/Ukraine war

75% believe the conflict will contribute to uncertainty through 2022 and taper rapidly in H1/23.

• Rising Federal Deficit

77% of respondents have little confidence the Canadian government will bring its deficit under control during the survey period. In fact, …

• Currency Devaluation

32% of respondents foresee an emerging risk by H1/2023.

• Inflation

87% believe inflation will continue to rise through 2022 and taper slightly through 2023. The nature of this inflation isn’t likely to be hyper but somewhat incremental – 68%

• K-Shaped Recovery

45% forecast a K-shaped recovery through the survey period, while 35% don’t believe a K-shape will be evident until 2023

• Ten-Year Treasuries

68% anticipate Treasuries to rise through 2022.

• COVID-19 6th Wave

remains a lingering scar on Canadians’ psyche as 48% of respondents believe there is a possibility for a 6th wave by H2/22 through H1/23. A 6th Wave was declared in Q1/22, months ahead of the survey forecast. This outcome feeds public anxiety for another…

• Emergent Contagion

47% of respondents are concerned about the “likelihood” of another contagion through 2023. In fact, 

• Remote/Hybrid

Sixty percent of respondents believe remote work arrangements will remain a significant industry threat through 2022 and only begin to taper in H2/23.

Employment Demand & Emerging Threats in 2023

The industry threats respondents anticipate for 2023 explain the additional hiring of back-end development and construction expertise through 2022 and the hedging of market uncertainty by focusing on professionals in H1/23 who are capable of effective building operations and asset management.

Survey Respondents Plan to Hedge Market Uncertainty in 2023

Forbes Rutherford, CRE 2022/23 P.E.S.T. Analysis

Most Active Positions in 2023

In 2023, roles focused on maintaining asset and portfolio value will take center stage. Key positions will include credit risk analysts, appraisal experts, property and asset managers, investment portfolio specialists, and professionals dedicated to enhancing customer and tenant experiences. While leasing roles are expected to see the highest turnover among all surveyed functions, 37% of respondents plan to hire leasing professionals, and 57% intend to maintain their current staff.

Top of Mind Emerging Threats in 2023

The key threats emerging in 2023 are poised to impact corporate resource planning and fuel market uncertainty.

Political

• European Union economic weakness – 35% of respondents expect Europe to undergo some form of destabilization beginning 2H/22 and continuing through to 2H/23.
• China/Taiwan – 59% of respondents believe Chinese aggression will begin and end in 1H/23. The brevity of this timeline would imply no one is confident Western countries will come to Taiwan’s aid.

Capital Access

• Construction Finance Contraction– 40% of respondents expect a contraction in construction finance to begin in 1H/23 and continue through 2H/23.
• Project Finance Contraction – 41% of respondents expect project financing to constrict beginning in 2H/22 and continue through 1H/23
• Structured Debt Contraction – 26% of respondents foresee a tightening of structured debt beginning in 1H/23 and tapering in 2H/23.

Workplace & Tenancy Travails

Lease Renewals – 68% of respondents admit lease renewals have been challenging through 1H/22, and expect further difficulties in 2H/22 and 1H/23, with some tapering in 2H/23bined with a purpose-driven vision is all a true “Builder” needs to succeed.

Workplace Design/Repurposing of Space – seen as an early response when stay-at-home mandates were deemed temporary, 70% of respondents believe this activity will continue through to the end of 2023

Tenant Insolvency/Bankruptcy – 59% of respondents believe insolvency and bankruptcy is an evolving threat beginning 2H/22 and will not run their course until the end of 1H/23. The concern stems from a belief that banks are not acting on delinquent commercial covenants. Credit risk analysis, including sensitivity testing the viability of existing and prospective tenants, will likely become the norm.

Rental Rates – 76% of respondents expect rental rates to be a factor in 2023.

Link here to read the survey addendum – A War for Quality Talent Requires Modern Tactics