The real estate and construction industry has faced significant change over the past few years. Like in any industry, change can be risky if you aren’t aware or prepared for what’s to come. Below are a few emerging trends and topics to be aware of within the real estate and construction industry so that you can prepare for what’s ahead.
Moving Toward Energy Efficiency
Over the past several years, the real estate and construction industry has seen progressive and consistent change related to energy efficiency. Environmental, Social and Governance (ESG) is a hot topic within the industry (along with the rest of the world!). And it has been integrated further through cleanup programs such as the NYS Brownfield cleanup program, which incentivizes cleanup and redevelopment of eligible contaminated properties.
Additionally, government regulations such as the 2022 Inflation Reduction Act (IRA) allows developers to offset higher building costs with a variety of tax incentives as long as they create energy-efficient buildings. For example, the 179D Deduction, also known as the Energy-Efficient Commercial Buildings 179D Tax Deduction, was a temporary tax incentive offering a small deduction per square foot for energy-efficient commercial buildings that are at least four stories tall. The IRA made the deduction permanent, increased the benefit and made it easier to qualify (REITs and tax-exempt organizations can qualify starting in 2023).
Continuing Labor Shortages
Not surprisingly, the largest struggle for many real estate and construction companies relates to labor shortages. According to our biennial 2022 New York Contractors State of the Industry Study, attracting and retaining qualified personnel has maintained the top spot as the most critical issue since 2014.
There is an additional layer of difficulty for many construction companies as many of the projects require skilled labor which is becoming increasingly difficult to find. For many construction companies, these labor shortages have led to project delays, rising labor costs, and unhappy customers.
Based on our survey data, we have found that many of these companies are taking action and have relied on the below tactics to attempt to ease their labor shortage pain points:
- Company sponsored internal training programs
- Refocusing on company culture
- Automation or use of technology on job sites to help offset the lack of labor
Reworking the Office Space
Given the rise in remote work over the past few years, the demand for commercial space has decreased. But while demand for commercial space may be down, many property owners and developers are already considering this and adapting where needed. For example, some are:
- Turning space into something that could be used as shared or coworking space,
- Converting space into multi-family, which is growing in momentum as some markets struggle with inadequate housing,
- Repurposing malls into multi-use (apartments, indoor parks, restaurants, etc.) and other facilities
That said, many companies (e.g., essential workers, or those passionate about having employees back in the office) are keeping their space. Companies that prefer employees back full-time may want to adapt their space to make it more attractive, for example, by adding outdoor space, or community space.
Additionally, it is important to consider the growing demand for creating communities that are central social districts where individuals can live, work and play. More and more, people are looking for walkable one stop shop communities, and this could drastically change the way communities are built going forward.
Overall, this isn’t the first time we have seen a shift in the need for space, and certainly won’t be the last. However, companies who embrace the change and allow for innovation will always thrive.
There is a lot of change occurring within the real estate and construction sector. We realize that change can be overwhelming for your business, but we are here to help you through it. Please do not hesitate to reach out to our trusted experts to discuss your specific situation.
This material has been prepared for general, informational purposes only and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. Should you require any such advice, please contact us directly. The information contained herein does not create, and your review or use of the information does not constitute, an accountant-client relationship.