We’ve all heard stories about the town that was built around the company (“Company Town“) where all the townsfolk depended on the one company for nearly everything. If the company closed, everyone would pick up and move to where the company was going.
However, in the last 10 years, the younger demographic has flipped this idea on its head. Now companies are scrambling to follow skilled laborers and young professionals.
In this post, I’m going to break down how labor shortage has affected Property Life Cycle models for companies seeking skilled laborers. If you’re not familiar with the term, “Property Life Cycle” (PLC) is one of the most basic and fundamental concepts in the corporate real estate industry. I thought it would be fun to explore how a major market shift, like a skilled labor shortage, might have a ripple effect across the PLC for supply chain users.
If you want to become more familiar with some of the basic concepts of CRE, Corenet Global provides some great resources. I would also recommend The Essential Guide to Corporate Real Estate. I keep a copy in my office and refer to it on a regular basis.
What is the Property Life Cycle (PLC)?
A Property Life Cycle begins at acquisition, follows the length of the holding period and ends with disposition after the property no longer serves an economic purpose. Most of the major actions during the PLC that require assistance from CRE professionals take place at the beginning and end of the cycle.
However, internal and external factors can drive major changes in PLC direction during the holding period (e.g. a property you thought you would sell 18 months from now ends up being re-purposed for another product division within the company). To put it more simply, you may not finish the race where you intended.
- External drivers would include addition or subtraction of other products and services, new technology within the company or industry, market forces that may impact lease/buy/build decisions, appetite for risk, public and private incentives, and demand for sustainability.
- Internal drivers are focused on what the business wants with the space, what the business plans to do with the space, how long will the space be needed, is the space seen as an asset or a cost and where should the space be located?
As the internal and external factors shift and change, each company will have to make subsequent changes in order to achieve or maintain a competitive advantage.
What does a shortage in skilled labor have to do with Property Life Cycle?
For the first time since 2007, a labor shortage appears to be slowing job growth. Year-over-year job growth is now only at 1.6%, down from 2.3% in February of 2015. It appears 18- to 30-year-old men are taking themselves out of the market during what would normally be prime working years for skilled labor positions.
PeopleReady completed a study in November of 2016, and “the overall shortage is driven primarily by the aging baby boomers. However, for many blue collar job categories the shortage is driven by an often overlooked trend: 10 million working age men missing from the labor force.
To put that number into perspective, 10 million men represents ~20% of the total workforce with a high school diploma or less.” As demand continues to grow for these positions, skilled labor rates will increase right along with it. As costs increase, employers will re-evaluate major business decisions including real estate commitments as it relates to the Property Life Cycle.
I asked Vik Bangia with Verum Consulting to weigh in on how a labor shortage would affect a company’s PLC model. Vik and I have corresponded off and on, professionally, for nearly a decade. His vast experience as a former corporate end-user and real estate executive puts him in a unique position to comment on this topic. Learn more about Vik here.
“Companies used to throw a wide net by focusing on general employment demographics, proximity to rail or intermodal facilities near densely populated areas, but things are changing. These employers now have to look more closely at the infrastructures and amenities that draw in 18- to 30-year-olds. Young professionals are fully mobile and can pick up and go where a live/work/play balance can be more easily achieved. 10 years ago that was almost unheard of. In some cases, mid-career professionals are moving to an area before securing a job.
Employers looking to capture skilled labor and capitalize on engaged workforces will need to reevaluate the decisions that go into their PLC models. Companies looking to target young professionals and skilled laborers need to identify markets that already have desirable infrastructure in place, which will serve as a key component to battling labor shortage and sustaining a viable labor pool. Denver is a good example of an emerging market that appeals to the younger demographic, be it blue collar workers or professionals.”
To reinforce Vik’s point, companies dependent on skilled labor will begin to change their PLC models to place a greater emphasis on markets and submarkets within metro areas that offer amenities and infrastructure that appeal to that company’s desired labor pool.
As baby boomers retire, the gap for skilled labor will widen and demand will continue to increase until the pool of skilled labor is replenished. Until that day comes, companies will be forced to follow the skilled workers wherever they may roam.
Thanks for reading! Please look for my upcoming post exploring the effects the Last Mile will have on PLC models.