Labor shortages. Volatile materials prices. Inflationary pressures. Capital markets turbulence. It’s all enough to keep real estate development project managers gobbling a steady diet of antacids as they grapple to keep their projects financially tenable.
A 2022 CBRE U.S. Construction Cost Trends report afforded them little hope things would get a great deal better soon. The report predicted costs could increase 5.4% this year, before inflationary pressures cool off. While cooling may be seen by mid-year, costs for some materials will remain volatile.
Predicted delays in material deliveries as well as semiconductor scarcity should also continue to plague the industry, as will a compressed post-Covid labor pool, an aging workforce and strong competition for labor, CBRE reports.
The post-pandemic macroeconomic uncertainty has made it more and more challenging for developers and project leads to finance new ground-up developments, a reality confirmed by a recent study conducted by Northspyre.
The company provides a cloud-based intelligence platform empowering real estate owners and development teams to make more proactive, data-driven decisions regarding complicated multi-million-dollar ground-up developments and major renovations. The report, entitled “The Biggest Challenges and Opportunities Facing Commercial Real Estate Project Managers in 2023,” reveals the degree to which project managers fret about inflation and its impact on budgets and timelines, leading unsurprisingly to bigger project outcome uncertainty.
Participating in the survey were approximately 100 project managers supervising U.S. developments across the continental U.S. They specifically cited inflationary pressures, poor productivity and questionable project outcomes as the most vexing issues confronting development leaders as the year got underway.
Key findings
More than half of project managers surveyed by the Northspyre study are convinced inflation will exert a moderate to major impact on their roles.
Some 85% of project managers believe inflationary pressures will require them to be increasingly careful and strategic in purchasing decisions.
When it comes to administrative tasks, approximately two-thirds of surveyed respondents report that administrative duties and the need to sift through disjointed, out-of-date or irrelevant data hamstrings productivity. That pain point precipitates the second most difficult hurdle, keeping costs and timetables on track.
Also leading to headaches is the fact many project managers use static spreadsheets and/or multiple systems to facilitate their work, engendering increased disorganization. Doing so can lead to any number of snags.
They include lack of clarity about how market disruptions and shifting real estate cycles impact current projects; relying on old draw requests to gauge current project financials; and tracking budgets not on the basis of forward-looking, data-reliant insights, but on error-prone, rigid spreadsheets.
Among project managers surveyed, about 45% employed a blend of real estate development software, account platforms and spreadsheets in their work. About 60% of respondents observed the most daunting hurdles they faced with their current software could be categorized as “disorganized data” and “laborious reporting.”
Clear desire
The report findings seem to point to an evident wish on the part of development team members for greater reinforcement from both leadership and technology.
Project managers who responded expressed the sense they have to spend too much time on manual data entry and other low-value organizational drudgery.
These tasks take time away from the kinds of important decisions that might dampen cost escalation, lessen risk and enhance overall project results.
About 60% of surveyed project managers believe technology can help improve up to 90% of project outcomes. ”With inflation and supply chain disruption driving a significant rise in construction costs, project managers overseeing complex developments are increasingly looking to technology to help manage budgets and remain organized throughout the development process,” said William Sankey, co-founder and CEO of Northspyre.