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Last week’s indication that an interest rate cut is on the way served as a beacon of hope for commercial real estate and the broader economy. But after two years of elevated rates and turbulence for CRE companies, especially brokerages, it will take more than optimism to get the labor market back on track.
There is still apprehension to hire, with attrition in the brokerage ranks, aging execs stymieing succession plans and leadership transitions, and a lack of transactions all combining to curtail any job market momentum.
“There’s a buildup of folks who are frustrated and ready to go, but the job market hasn’t caught up,” CRE Recruiting CEO and founder Allison Weiss said. “The frustration level is pretty high. Companies are doing more with less, budgets are smaller, co-workers who left haven’t been replaced, and many are being called back into the office.”
Layoffs have continued in the industry. Kent Elliott, principal of RETS Associates, said he has noticed a lot of “selective cutting.” Bigger brokerages have engaged in “quiet cutting,” which, along with resignations, attrition and a lack of backfill hiring, have shrunk headcounts. Marcus & Millichap reported an 8% year-over-year decrease in its brokerage staff during a second-quarter earnings call.
Nationally, the job market, especially perceptions of its strength, have taken a hit in recent days, thanks to a revision of hiring data from the Bureau of Labor Statistics showing 818,000 fewer jobs were created than previously believed between April 2023 and March 2024. The Federal Reserve has also begun to focus on the job market instead of inflation, as unemployment has slowly inched up to 4.3% from its low point of 3.5% prepandemic.
The long-term CRE hiring freeze and struggles with sectors like office have hurt broker retention and training, Weiss said. The last four years, a whipsaw of black swan events and changing fortunes have soured many on the industry, especially in sectors such as tech, marketing and business services, which have seen growth hampered by economic challenges.
“There’s still a lot of fear and risk aversion,” Klasson said. “We just haven’t seen development and acquisitions roles open back up, especially senior levels, and we aren’t seeing cranes out at work. That’s going to take some time.”
The talent pool of senior brokers has become shallow, so younger brokers haven’t benefited from training and experience.
“Brokers feel the pinch,” Weiss said. “Every time there’s a market correction, people shake loose out of the industry. Every time that happens, my phone rings off the hook because people want to flee brokerage into in-house roles.”
Much of the recent hiring from CRE firms has remained focused on the same types of roles, either those in niche sectors like data centers or better monetizing existing assets and taking care of distressed assets, and hiring has yet to start focusing on more transactional positions.
Companies have been looking for investment management roles, asset managers and property managers, Klasson said. She is also beginning to see companies “dip their toe in the water” and hire what she calls the grinders, junior-level staff or those focused on underwriting and due diligence. Companies still hesitate to take bets on senior and executive-level roles due to the higher compensations and greater expectations that come with those hires.
Signs do suggest firms have started planning for a turn in the market. RCLCO’s management and strategic consultation practice is “going gangbusters,” Klasson said, with companies using time they would typically spend on transactions laying out road maps for the next three to five years.
Elliott also pointed to some well-capitalized firms starting to selectively hire for what they see as a busy season in the start of 2025.
“Some of these firms are seeing the pot of gold at the end of the rainbow,” he said. “I can see the horizon, and I want to be hiring now for this key role, rather than hiring six months from now.”
Firms and brokerages have been consumed by what they see as a looming shake-up. When transaction volume comes back, there is a fear that with promotes decreasing and aging leadership finally departing — boomers still make up about 20% of the industry’s workforce — top players will start playing musical chairs during a massive shake-up.
This year alone, top brokerage CEOs saw their compensation drop more than 20% in many cases. Many companies seek to get ahead and keep their team in place, Klasson said. Many are evaluating compensation and making sure they are able to retain existing talent or finding other levers to retain top performers.
“People have been holding on,” Klasson said. “I was thinking that people would maybe walk away while there wasn’t much happening. But perhaps people are more interested in getting another big deal before they go.”
The predicted departure of a generation of senior leadership hasn’t happened, Weiss said.
“We’re getting to a point where I feel like the retirement has to happen,” she said.
Execs, meanwhile, are hanging on to see if equity or noncash compensation recovers in the next few quarters.
In response, firms have been more engaged in succession planning, Ferguson Partners President Graham Beatty said. There is more of a reckoning over what comes next, especially on the verge of a market shift.
“I think the preparation for a shifting rate environment, and, you know, a focus on business planning for 2025, many clients believe that’s going to manifest opportunity,” he said.
CBRE Chief Financial Officer Emma Giamartino told investors during a May earnings call that the firm is “taking a hard look at corporate costs” and anticipates earnings won’t really recover until next year.
Beatty sees the muted hiring environment lingering, even if there are more signs of a turnaround, due to the potential to utilize tech to eliminate some of those low- or midlevel roles.
“If we see multiple cuts, you know, then the hiring activity jumps dramatically,” he said. “If we see limited cuts, we’re still going to see an uptick in our hiring activity because when the market stays still for a long period of time, there’s a lot of restlessness.”
But it might already be too late in 2024 for an aggressive hiring rebound. Weiss cautioned that as we approach Labor Day, the calendar has already gotten to the point in the year where hiring has traditionally picked up. Between waiting to see how deep Fed cuts are and evaluating the economic picture postelection, she believes firms will be more conservative.
“I think that there’s a little bit more hesitancy to dive in and hire,” Weiss said. “Because the ‘survive to 25’ mantra was so loud, a lot of companies might just wait.”
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Contact Patrick Sisson at [email protected]
