Check back here for our thoughts on the latest developments in our industry.
May 08, 2023
The news cycle today is filled with financial concerns such as inflation, rising interest rates, layoffs, and banking issues. Despite the headlines, the construction industry is continuing to add new jobs, and contractor backlogs remain strong. That said, the building sector is not without its challenges, with increased construction and finance costs leading that conversation.
Looking holistically beyond the obvious issues of making project math work based on current economic factors and different assumptions, we see the following five challenges to building owners and investors as we are farther into 2023 and continue to tailor solutions around these concerns and trends.
1/ Portfolio Restructuring
The past few years have reflected significant shifts in property and portfolio values. Corporate portfolios have been shifting asset allocations, but real estate assets have been slower to move due to difficulties with unsettled valuations and are only beginning to shift. Deal volumes are anticipated to accelerate in the second half of 2023 as interest rates stabilize and rate locks expire.
In different phases of the building lifecycle, what we are seeing and anticipating most this year is a continued focus on maintaining assets with an emphasis on renovations, repositioning, and conversions, among others. Deferred maintenance can be a costly consideration for transactions involving distressed properties.
In this particular place in the lifecycle, our goal is to help owners make more informed decisions about prioritizing work needed and costs associated with reinvigorating such properties. From the lender and investor perspective, we take a holistic view by evaluating status, costs, and schedules to complete projects, as well as other project-specific services related to loan restructuring and workout solutions.
2/ Long Covid – Disruption and Innovation
As everyone has experienced in a variety of ways, the past three years of the COVID-19 pandemic created both disruption and innovation in every corner of the global economy. Echoing the aftermath of the virus in many people, some sectors of the economy are experiencing long-term effects. Supply chain interruptions are one such symptom.
Transportation costs, labor and material shortages, and related manufacturing and production issues are all experiencing lingering impacts of the pandemic. As a result, the construction industry’s supply chain disruptions are expected to persist throughout this year. Our role is to help construction project teams identify and anticipate potential supply chain issues and evaluate alternatives to better manage those risks.
Early in the pandemic, innovations across the building industry, understandably, addressed occupant wellness as a top priority. Early outcomes included developing/implementing enhanced air filtration and anti-microbial surfaces and treatments. Next came innovations in e-commerce support, hybrid workplace design, home-officing, and better communication technology. As the construction industry continues responding to supply chain and labor shortages, we expect to see even more interest in alternative building materials, autonomous construction technology, offsite prefabrication, and, importantly, productivity technologies.
To share a snapshot: we discovered that work-from-home is successful and have created several additional satellite work teams to place our professionals closer to projects. We also invested in mobile technologies that allow us to communicate faster from remote locations. Learning from the challenges of construction monitoring during shelter-in-place orders, we have expanded our capabilities with virtual walkthroughs.
For example, we can capture 360-degree reality for both interiors and exteriors so we can visit a jobsite from anywhere. In addition, we integrated real-time video conferencing from the field—shrinking the time and distance between the jobsite and access to specialist knowledge. Pushing further, we also investigated 3D scanning with hand-held LIDAR devices, point cloud scanners, and photogrammetry to translate physical components into an accurate digital model—a “digital twin”—of those building elements. Combined, these investments in talent and technology have expanded our ability to deliver more local service with nationwide coverage.
Scarcity in skilled labor has been a persistent issue across the construction industry. And now, leadership and supervision deficiencies are coming to the forefront. Baby Boomers will be between 59 and 77 years old in 2023. While they have stayed in the workforce longer than prior generations, they are now retiring.
This will create opportunities for well-prepared companies, though may leave leadership, knowledge, and relationship gaps in others. These deficits can result in field quality control issues during construction, maintenance deficiencies during occupancy, incomplete capital needs assessments and planning.
So how do we help mitigate these issues? Work across the industry to share knowledge and training, continuously learn about new products and techniques, help assess construction teams and identify gaps proactively, and help connect projects with the expertise and teams needed to solve problems.
4/ Socially Conscious Investing
Environmental, Social, and Governance (ESG) investing allows socially conscious investors to screen potential investments and encourage companies to act responsibly. Real estate owners and investors are gathering ESG data for existing assets, acquisitions, and new construction projects so they can evaluate their portfolios and communicate clearly with investors.
We continue to have a unique and growing perspective with ESG, as we not only help clients gather data about sustainability features and resiliency characteristics, but we also help building owners with the next, most optimal moves—to interpret the data and make better decisions on how best to deploy capital toward energy-saving and decarbonization upgrade goals.
Electrification is accelerating the replacement of technologies that use fossil fuels, such as transportation and heating. This shift is increasing construction of renewal energy systems and production of electric-powered equipment that is diverting materials and labor from the building construction industry.
Resulting labor and supply chain issues are impacting mechanical and electrical trades nationwide. Increasingly, construction teams are looking to an independent, nationwide consultancy like Marx|Okubo to identify risks and potential long lead-times upfront, encourage proactive problem solving, include reasonable contingencies, and manage the risks throughout construction.
Building owners are responding to local regulations requiring energy performance reporting as well as energy-efficiency and decarbonization upgrades. At the same time, building owners are also considering market-driven demands such as adding electric vehicle charging stations. We typically offer building owners assistance with energy audits, capital needs, and electrification projects.
Know that when any of these of five issues arise, our team can provide solutions to keep you and your projects moving ahead with confidence—so better decisions are made towards owning and operating better buildings. We welcome you to get in touch.
Marx|Okubo is a national architecture/engineering/construction consulting firm that works with real estate owners, investors and lenders—at every point of the property lifecycle—to evaluate their building projects, solve complex challenges and implement tailored solutions. We help clients understand their projects’ complexities, so they can make more informed decisions and, ultimately, mitigate their risk.