August 22, 2022

4 Ways the Great Resignation is Impacting Industrial Real Estate

4 Ways the Great Resignation is Impacting Industrial Real Estate

Most of the world is currently dealing with a phenomenon known as “The Great Resignation.” This name refers to an ongoing trend of corporate employees quitting their jobs in large numbers due to inadequate pay or benefits, cost of living in their region, COVID-19 health policies, desire for remote work, general job dissatisfaction, and many other reasons. While the labor market will inevitably find ways to correct itself, the timing of when this could happen remains fuzzy. In the meantime, every labor market segment is striving to find ways to adapt to the latest trends.

Industrial real estate is no exception. Though industrial has positioned itself as an undisputed leader in commercial real estate since the pandemic hit, even this sector feels the impact of labor shortages. This article will discuss how The Great Resignation has affected industrial real estate.

Understaffing

Industrial verticals like warehousing have always suffered from high turnover, but those numbers soared during the pandemic. In 2020, the Bureau of Labor Statistics reported a 59.1% turnover rate in transportation, warehousing, and utilities, dropping to a still-high 49% in 2021. Manufacturing also suffered from high turnover in both years, with 44.2% in 2020 and 39.9% in 2021.

Perpetual understaffing has made it difficult for some logistics and manufacturing operations to operate at full capacity or to expand. These challenges would’ve had a more noticeable impact on the industrial real estate sector if an e-commerce boom hadn’t spiked warehouse demand for the past two years. If the Great Resignation lasts beyond the point when industrial supply and demand begin to balance, industrial brokers and property owners may feel the impact more.

Financing

Over the past several years, the strength of the industrial market resulted in extensive funding options for investors and other stakeholders looking to build or renovate industrial inventory. However, as the United States teeters on the edge of a recession, financiers may look to tighten their belts even as they strive to hire. CRE mortgage services have certainly not escaped The Great Recession, and some experts fear rising labor costs may negatively affect the amount of capital available for lending.

Construction

Construction had a labor shortage problem long before The Great Resignation came along and exacerbated it. As a result, developers can’t hire new workers at the same rate they’re losing them, directly impacting their ability to develop new industrial facilities. Even worse, about 1/5 of construction workers are set to retire in the next six years, suggesting that construction’s labor problem will outlast the broader Great Resignation trend, just as it preceded it.

That said, developers will press on and continue delivering new industrial inventory at the fastest pace possible. Without the ability to fully staff job sites, however, it will take much longer for industrial supply to catch up with demand than most CRE stakeholders would like.

Supply Chain

Even if construction could solve its hiring and retention problems overnight, projects would still get delayed due to a shortage of critical building assets, such as steel and roofing materials. Labor issues sit near the top of a long list of problems causing continuous disruptions in the global supply chain. With talent shortages hitting manufacturers, warehouses, ports, carriers, and everything in between, getting critical building materials from Point A to Point B has become exceptionally challenging.

The building material supply chain can’t become truly resilient until the labor challenges that cause disruptions get addressed. Unfortunately, since there is no simple answer to this problem, building material shortages will continue fueling the industrial real estate shortage for the foreseeable future.

About Phoenix Investors

Founded by Frank P. Crivello in 1994, Phoenix Investors and its affiliates (collectively “Phoenix”) are a leader in the acquisition, development, renovation, and repositioning of industrial facilities throughout the United States. Utilizing a disciplined investment approach and successful partnerships with institutional capital sources, corporations and public stakeholders, Phoenix has developed a proven track record of generating superior risk adjusted returns, while providing cost-efficient lease rates for its growing portfolio of national tenants. Its efforts inspire and drive the transformation and reinvigoration of the economic engines in the communities it serves. Phoenix continues to be defined by thoughtful relationships, sophisticated investment tools, cost efficient solutions, and a reputation for success.

Mr. Frank P. Crivello began his real estate career in 1982, focusing his investments in multifamily, office, industrial, and shopping center developments across the United States. From 1994 to 2008, Mr. Crivello assisted Phoenix Investors in its execution of its then business model of acquiring net lease commercial real estate across the United States. Since 2009, Mr. Crivello has assisted Phoenix Investors in the shift of its core focus to the acquisition of industrial real estate throughout the country.

Given his extensive experience in all aspects of commercial real estate, Mr. Crivello provides strategic and operational input to Phoenix Investors and its affiliated companies.

Mr. Crivello received a B.A., Magna Cum Laude, from Brown University and the London School of Economics, while completing a double major in Economics and Political Science; he is a member of Phi Beta Kappa. Outside of his business interests, Mr. Crivello invests his time, energy, and financial support across a wide net of charitable projects and organizations.

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