The right moves: Is it time for real estate firms to staff up again?
Writing this column keeps me in contact with firms from all areas of property, from agents to surveyors, architects and engineers. With the markets recovering, it is clear that many firms, from small to large, are all facing the same dilemma: Do we blindly gear up again to meet rising demand by taking on more staff at increasing salaries? Or, given that construction and property markets are cyclical; will this simply lead to another round of layoffs in the next downturn?
These were among the topics I discussed with Krystyna Rawicz, owner of Krystyna Rawicz Associates (KRA), Chartered Building Surveyors. At the height of the market, KRA had three offices and 14 staff and that reduced to a survival mode of one office and two staff in the recession. Now, Ms Rawicz says demand for building surveying services has increased by 40pc over the last twelve months. In response, KRA have increased staff to eight and is debating whether to keep increasing numbers to service work?
Even where firms decide to take on more staff, there are shortages of qualified people, and this is putting pressure on salaries. As one senior QS commented recently "We're back to the stage where candidates are interviewing us and deciding where to go." However as Ms Rawicz points out, fees have not risen enough to warrant higher salaries. Another big factor pushing salary expectations is the cost of rental accommodation for staff in Dublin, she added.
In assessing whether or not to "gear up", firms need to assess their markets and what direction they may take. For example, the biggest source of work is Nama. However, there will be an end to that type of work in the short term. What level of development, re-sales and management work will the market settle at under a new regime of property ownership in Ireland? Also, while we will see a burst of office development, it seems to me that the development emphasis will shift to residential for at least five years.
It's interesting to look at the patterns of work for KRA. Ms Rawicz tells me that a big increase in the number of new lettings sees them preparing more "Schedules of Condition" for landlords or tenants. A lot of disputes are arising over "dilapidations" from a generation of 35 year leases now expiring. KRA are also finding that a lot of short leases, agreed under pressure in the recession, did not have good documentation, and this is causing trouble as leases expire.
The next major source of work is surveys for buyers and the new area of "pre-disposal surveys", which are required by Nama, banks, receivers and increasingly property companies. This survey is given to all interested buyers and KRA's liability under the survey is assignable to the purchaser.
Another rapidly growing area is project management and for example KRA have handled the upgrades of 17 bank branches this year. They also completed the development of 18 houses for a receiver. General professional work such as preparing certificates of compliance with planning and building regulations and refurbishment and extensions to high value period houses complete KRA's rapidly growing workload.
The psychological scars of the recession are affecting the construction sector and many of the companies that shrank to survive are also reluctant to gear up. This is causing a lack of capacity in the industry as contractors don't have the manpower to take on projects and are increasing tender prices or not tendering at all. Construction costs are up 5.5pc this year but are rising faster for cladding and mechanical and electrical.
Ms Rawicz cited a recent example where 19 Irish glazing contractors were invited to tender for a development. Only two companies tendered and both were 15-20pc over the quantity surveyors estimate.
Firms need to escape the mindset of desperately servicing work, no matter what, which was understandable to survive the recession. Firms need to be ruthless in refusing low margin work and there is capacity to increase fees. Consider paying staff a commission of 10-15pc for each job they handle. This rewards the best performers and keeps salary levels lower. Diversification is another way to reduce the risk of the "boom-bust" cycle. Whatever strategy firms adopt, this is an important stage of the recovery.