Managing Toward an Uncertain Tomorrow

Managing Toward an Uncertain Tomorrow

The following Rutherford International’s CRE 2022/23 Industry P.E.S.T. survey update highlights nine vital industry occupations which are top of mind for respondents. We focus on the specific risk factors contributing to respondent concerns and each threat’s relationship to the 2022 and 2023 corporate resourcing strategies. Overall, respondents noted that talent quality (77%) and rising wages (66%) are part of their threat analysis into 2023. Given concerns over talent quality and receiving value, we’ve attached an addendum article labelled “A War for Quality Talent” which provides advice on meeting 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

Developing a strategic plan around the possibilities of tomorrow while faced with present-day political, economic, social, and technological challenges will tax the focus and imaginations of most executive leadership teams. Notwithstanding a continuing post-COVID19 malaise, there are certain constants that strategic planners can apply, through incrementalism, to raise their company’s performance above the productivity mean of their competition.

One form of incremental adjustment is a deliberate strategy to improve the talent quality within the company. (Seventy-seven per cent of survey respondents believe the lack of talent quality is a current or likely threat to the end of 2023.)The talent pool for quality is shallow, but this is not a new phenomenon. Quality talent has always been in scarce supply, and it has become more pronounced as retirements and resignations have drained the talent pool.

When considering the statistically supported adage that 20% of a firm’s employees are liable for 80% of its output, a science-based hiring strategy that consistently adds to this 20% will, over time, secure the company’s tomorrow.

Quality Talent Has Always Been in Scare Supply

Forbes Rutherford – 2020/22 – CRE PEST Analysis

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

Current & Emerging Threats in 2022

The trending opinion in our 2022/23 P.E.S.T. analysis reveals that senior executives expect all levels of government to be active players in accessing Canada’s credit markets while increasing personal and corporate taxes, development fees and regulations. Governments competing for capital within an inflationary market will have an extenuating impact on asset repositioning and development proformas. Developers with shovel ready projects and funds in place are making every effort to expedite their projects through 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, positions connected to back-end development, construction, finance, accounting (particularly project accounting), analytics, and investment/acquisition are most active.

Top of Mind Threats in 2022

The top-of-mind threats through the remainder of 2022 affecting resource plans and feeding market uncertainty are:

  • Rising CAP rates – 35% of respondents expect an increase in 2H/22, continuing through 1H/23 and tapering slightly in 2H/23
  • Russia/Ukrainian 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 – 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 agonize at the “likelihood” of another contagion through 2023. In fact, …
  • Remote/Hybrid – 60% of respondents believe remote work arrangements will remain an 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-ended 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, positions connected to preserving asset and portfolio values will be dominant. Roles spanning credit risk analysis, appraisal expertise, property and asset management, balancing investment portfolios and front-of-the office customer/tenant experience management. Although leasing positions will experience the greatest churn relative to all functions surveyed, 37% of respondents will be hiring leasing professionals, while 57% will keep their staff in place.

Top of Mind Emerging Threats in 2023

The top-of-mind threats emerging in 2023, which will affect corporate resource plans along with feeding market uncertainty, are:

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

Workplace & Tenancy Travails

  • 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.
  • 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/23

Workforce Resilience or Malaise of Purpose

Although COVID is ebbing into an endemic, we have officially entered the third pandemic year. The effects of lockdown and “work from home” mandates are indelibly etched on our collective psyches. Social science commentators describe the societal response to a post-COVID future with trendy terms such as ‘The Great Retirement’ (Boomer II & Early GenX’ers), the ‘Great Resignation’ (Late GenX/Y’ers spoiled by WFH seeking work/life balance) and the ‘Lying Flat’ phenomena (GenY/Z’ers feeling hopeless facing an indebted future and lower standard of living.) We can aggregate these terms into one basic definition, ‘The Great Malaise of Purpose.’

The tension faced before COVID was no less unstable as long as the waves of liquidity flowed from the various Western world’s national banks printing presses into the capital markets. In a sense, regardless of its corrupting influence on price discovery and self-correcting market principles, modern monetary theorists believed a succession of quantitative easing was a stabilizing force. In reality, it allowed for undisciplined public policy and ushered in insurmountable wealth gaps. Whether countries such as Canada have any fiscal capacity left to stimulate their economies remains to be seen. Canada sits at the bottom of an OCED’s country forecast predicting Canada’s per capita productivity will be in the bottom quartile until 2060. The vectors of threats and options available to governments are increasing, self-inflicted and limiting.

By and large, real estate is local, the professionals who serve the industry are by their very nature optimists and in many cases, dreamers. No other industry is blessed with so many entrepreneurial and resilient minds. With all the cautionary elements within this update, 85% of respondents are Somewhat or Very Positive about 2023. In the end, a healthy sense of caution with a strong dose of purpose-led vision is really all a “Builder” needs.

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

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