Barely a day passes without inflation hitting the headlines, and few industries are completely immune to its influence.
Commercial real estate (CRE) is proving especially susceptible to the fallout of sustained periods of increased inflation, and developers aren’t shy in issuing warnings about what’s to come if this state of affairs persists further.
Budgets Are Taking a Hammering
A new report supported by northspyre.com asked 100 CRE project managers about the obstacles facing the industry at the moment, and one of the main points flagged in the responses was that of the role played by inflation in causing budgets to balloon beyond original projections.
Because of this, developers are having to be more conscientious about the decisions they make regarding the purchasing of materials. Prices can change dramatically in relatively short periods, and so this has to be factored in earlier in the process, and accommodated on the fly as the situation changes further down the line.
Uncertainty Is Also a Factor
Inflation is only one element of the current crises in CRE development, with broader uncertainty surrounding political and economic matters means that it’s harder to be certain that choices made now will prove savvy or foolish as 2023 plays out.
Data is more valuable as a resource than ever before, as it gives project managers a way to make predictions on evidence and analytics, rather than blind faith.
Modern commercial real estate software makes this achievable, with the automation of admin tasks and even the calculation and revision of project budgets being handled by powerful tools.
Delays Are Considered More Likely
While households may be worried about inflation’s impact on their finances, in CRE another of the problems that this throws up is that of project delays.
Deadlines set months or years in the past cannot be stuck to with any confidence if there are new variables in play today that weren’t on the radar originally, and rising inflation is the mother of all disruptive forces.
With delays come increased costs, as well as reputational damage and a range of unwanted side effects. Revising plans and being more realistic about the scheduling of commercial developments is necessary for those in managerial positions right now.
Labour Costs Are Another Issue To Contend With
CRE projects don’t just have to deal with increasing material costs when inflation spikes, but also with the inevitable rises in the cost of labour that comes along with it.
This is being exacerbated not just by inflation, but also by the worker shortage that hampers various aspects of the construction and development market in the UK and further afield.
There are not always enough team members available to work on a project as anticipated, and those that can commit are commanding higher wages because the cost of living is higher, and their skills are in demand so they have more power to negotiate with employers.
The Future Is Unclear But The News Isn’t All Bad
There is no point pretending that the current conundrum facing Britain and the wider world is going to resolve itself quickly, and 2023 will almost certainly be another period of prolonged volatility.
With signs that recession is already taking hold, it’s a point at which CRE developers must do everything they can to get on top of the problems they face, rather than allowing them to run rampant.
Technology is definitely the key here, and as hinted at earlier it’s only through software automation and data-driven decision-making that projects of all sizes can be successfully stewarded through the stormy seas we’re all stuck with at the moment.