New Study Shows Strong Confidence in Pacific Northwest Commercial Real Estate and Construction Market
Schwabe, Williamson & Wyatt released State of Commercial Real Estate & Construction in the Pacific Northwest, a survey detailing insights from more than 700 industry leaders in the Pacific Northwest. The data shows that almost 75 percent of commercial real estate (CRE) and construction leaders in the Pacific Northwest have a strong degree of confidence in the local economy, their industry, and individual companies. The most pressing challenges and opportunities for innovation that leaders identified include business resilience, growth, and workforce.
“Pacific Northwest skylines have been transformed by the visionaries that operate in our region’s commercial real estate and construction industry,” said Stephanie Holmberg, Real Estate & Construction Industry Group Leader at Schwabe, Williamson & Wyatt. “While the industry has seen considerable growth, industry veterans know from experience that it is crucial to stay on top of your business, preparing for resilience and even vitality during periods of economic change.”
The majority of respondents—almost 75 percent—report feeling confident about the current state of business, based on their company, industry, and the strength of the regional economy. Businesses in CRE and construction report similar confidence levels about their companies and industries. However, CRE reports slightly higher confidence in their companies and regional economy, while construction has a slightly higher confidence in their industry.
When asked about the primary reasons for confidence in their company’s growth, Washington businesses on the whole report stronger confidence due to their local economy, with Oregon citing more confidence in the volume of incoming opportunities and expansion across their industry.
“The economy is strong and relatively diversified, which should allow the Puget Sound region to fare better in the coming downturn than many other parts of the nation,” says the President of a Washington CRE company.
Despite a strong sense of confidence about their companies, industries, and economies, more than half of respondents believe a downturn could still be on the horizon as early as next year (2020). On the whole, construction businesses are more optimistic about growth in the next year, with CRE slightly more likely to expect market stagnancy or decline.
To mitigate against a potential economic slowdown, businesses are closely watching their bottom line, including personnel-related costs. Companies in both industries are also diversifying their clients and services and being strategic when selecting projects. The lowest-ranked actions include strengthening existing client relationships and increasing marketing, despite a stated desire to engage new and varied clients.
Leaders across CRE and construction report that while doing business in the Pacific Northwest is advantageous, it is not without its challenges. Respondents praise the strong economy and growing population; however, local regulations and the cost of living are seen as the biggest hindrances. The top regulatory issues that businesses report facing are with respect to the environment, affordable housing, taxes, and a constellation of workforce policies including healthcare, immigration, minimum wage, and paid time off.
CRE companies are significantly more concerned with affordable housing and minimum wage legislation, while construction is feeling the pressure from healthcare regulations. While Oregon is more concerned with healthcare, and Washington with overtime pay (most likely due to a proposed revision in state law), affordable housing is reported as one of the most significant regulatory challenges in both states.
Bellevue, WA and Hillsboro, OR are predicted to be the next major metropolitan areas outside of Seattle and Portland with rich growth opportunities for CRE and construction. Half of respondents state they will be working on more infrastructure and private-public partnerships in the coming year, in an effort to diversify. Additionally, 25 percent of respondents state they will be working on fewer amusement, retail space, and hotel and lodging projects in the coming year.
The President of an Oregon construction company notes, “We have a growing population which produces demand. With the continued expansion, there is new outside money investing in our market and it’s a desired place to live.”
Three of the top five most commonly-reported business concerns across CRE and construction are talent-related. These concerns include attracting and retaining strong employees, the cost of employee healthcare and other benefits, and training and succession planning challenges. Of these crucial workforce challenges, the construction industry reports a slightly higher sense of concern compared to CRE.
“We are losing skilled personnel due to retirement and are struggling to find new personnel to replace them," says a Partner of a Washington CRE company.
Despite the challenges businesses report with recruiting and retaining skilled talent, many employers say they have strong HR programs in place. According to respondents, almost all report having an employee-friendly culture (90 percent). As many as 70 percent cite having strong health and retirement benefits, training opportunities, and other perks related to vacation and flexible work arrangements.
Over half of respondents plan to increase their full-time workforce in the next year, yet that same amount believe their biggest challenge is finding qualified employees. Significant talent recruiting and retention concerns reported by businesses include a shortage of skilled labor and retaining high-performing employees. At the same time, one-third of businesses report planning to keep their workforce growth flat, due in part to their plan to protect their bottom line in the event of an economic slowdown.
The study, conducted by the American Business Journals, explores attitudes and behaviors of those working in the CRE and construction industry in the Pacific Northwest region, with emphasis on the Seattle and Portland metro areas. In total, over 770 participants responded to the survey. Respondents were evenly spread across the Oregon and Washington markets, with strong representation in both the CRE and construction industries.
The full survey findings can now be downloaded at schwabe.com/state-of-real-estate-construction.
- Dave HeplerShareholder
- Stephanie HolmbergIndustry Group Leader