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Feb 3

2023 Construction Industry Outlook: Potential recession may unlock opportunities

Prominent industry executives share their economic perspectives
and advice to plan for the year ahead:

With talk of an impending recession, it’s no surprise many companies are scaling back, shoring up their finances and pressing pause on spending. While it’s impossible to predict the precise timing or depth of a recession, many agree it’s not ‘if’ but ‘when’ one may take place.

We’ve experienced firsthand the impact inflation and labor and materials shortages have had on the construction industry, especially in the last year. As part of our mission to be the go-to resource for project leaders, we asked our partners in the commercial real estate and finance industries how industry leaders, as well as those looking to join the construction field, can mitigate risk and ensure success during this uncertain time.

Continue reading for insights from Lauren Weinbaum, owner of Weinbaum Management Group (WMG), Jeffery G. Wuo, AIA, DBIA, LEED AP, senior vice president of construction & project delivery at Unibail-Rodamco-Westfield (URW), and Giancarlo Hamner, CFP, CRPS, financial advisor at Edward Jones, on the potential impact of a recession and how to best navigate the current environment.

From your perspective, what does a recession mean for the construction industry, and what changes do you anticipate in 2023 as a result of the evolving economic environment?

Lauren Weinbaum: Generally, about six months to one year prior to a recession and the slowdown of construction work, large architectural firms and tenant improvement contractors massively reduce their staff. Once these initial layoffs happen, remaining employers have more competitive potential candidate pools. Owners find more competitive pricing due to increased supply versus demand. The large employee pay scales that typically occur during historic economic booms are fixed during this time, as well. Output production also increases during a recession, with 10 percent of people doing 90 percent of the work.

Clients and developers should perform any necessary capital projects during the recession, if possible, especially if they do not have to finance those projects. Since development peers may be holding on projects, firms will have access to more material and labor stemming from less demand. Overall, the cost and schedule timelines should be much more favorable. Now is a good time to invest in long-term maintenance projects because when the economy rebounds (and it will), these types of projects are eclipsed by those that bring obvious improvement to consumers. This is an opportunity to extend the life of assets during the downturn.

Jeffery Wuo: If a recession happens, I imagine it will be similar to 2008. Back then, there was a quick shift to public projects as private sector financing dried up. Construction firms with diverse portfolios in different markets were quick to pivot. In a recession, there will be fewer negotiated projects and more public bid competition. Now is a good time for firms to brush up on bidding skills as many of the younger hires from recent years haven’t likely experienced the bidding process before.

Giancarlo Hamner: A recession almost certainly means there will be a slowdown, meaning more competition for less profit. In 2023, you will see prepared firms and businesses take advantage of the opportunity and come out on top, while the unprepared will likely fail. Now is a great time to start a backlog of work. Search out government contract opportunities and be sure you are sitting on plenty of cash. Keeping a disciplined approach to your business is key this year. It’s likely some firms will experience layoffs, which could be a costly mistake. With unemployment numbers already low, these firms may struggle to rehire when the economic conditions improve, which could be as early as mid-2023.

Whether a recession is here now or coming soon, how will it impact your work?

Lauren Weinbaum: In 2008, the company I worked for specialized in only private sector work, so I was personally impacted by the recession. At the time, most private developments were paused due to the high interest rates and economic uncertainty. The projects that were not paused were funded by bonds or federal stimulus packages. After that experience, I promised myself I would pursue more public work. I constantly aim to recession-proof our company by always having a healthy mix of both public and private clients.

Jeffery Wuo: Retail construction has already been experiencing a “recession” for the last decade or so. Investors have wanted to exit the retail market for some time, and we’ve seen this repeatedly across the country as malls have closed down or been sold off. Only the top malls in top destinations will survive, and they will do so by differentiating themselves. Whether a recession happens or not, the retail sector will always invest in itself, just in more specific and strategic projects that align with their vision to stand out from the competition.

Giancarlo Hamner: The term ‘recession’ has many different definitions depending who you ask. Because of this, people often make inaccurate assumptions about what may happen once a recession occurs. A recession is two or more quarters of gross domestic product (GDP) retraction. It’s likely we are already there, but people won’t see it announced until fourth quarter numbers from 2022 are calculated, which is usually around mid-March or early April. Oftentimes, we’ve already hit market bottom by the time a recession is publicly announced. It’s unlikely the recession will mirror 2008’s depth and longevity. While unemployment may rise, it’s unlikely it’ll reach 2008 levels. Inflation seems to have peaked and will decrease.

Now is the time to double down. As Warren Buffet once said, "Be greedy when others are fearful.” In the construction industry, some firms may go under, and those clients will look for new relationships. For our office, this is the time to dig deep with our clients, ensure mutual understanding of financial goals, keep channels of communication open and make any necessary adjustments to overall strategy. Now is the time to make meaningful impacts to our client’s financial futures. Historically, when we look back at some of the best times to invest, the greatest fortunes get made when the news is telling everyone the country is in an economic downturn. Imagine investing in the market lows of '87, '01, '08, '20. Substantial wealth followed those economic downturns.

What would you tell people considering a career in construction?

Lauren Weinbaum: After almost two decades in the construction industry, I would still pursue a career in the field. Early in your career, ensuring you gain as much experience as possible on job sites is crucial. As your career evolves, shift your focus to gaining outside experience such as learning how to use computer software and manage people. Overall, I love that although I may have my day planned, it rarely shakes out the way I plan. This keeps things fresh and exciting in the long run.

Jeffery Wuo: I would say that, in any industry, if you work hard and invest the time and effort, you will have a very fulfilling career. What we’ve learned, especially in the last few years, is that construction professionals are considered “essential workers” and there will always be “work” because of the skills and knowledge these professionals possess. And like the industry in general, even during a recession, skills and knowledge allow you to pivot from one market to another.

Giancarlo Hamner: If you're just starting, find a financially strong firm that’s able to weather the upcoming storm. Personally, make sure to have cash set aside and try to delay large purchases. Stick to what you know because now is the time to focus on your niche. It is not time to be all things to all people. Be disciplined, stay optimistic and look for the opportunities. History has shown us that this will pass, as all recessions have before, and lead to new times of growth.

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Office: 310.598.7107

WMG is a certified DBE/SBE Construction Management Firm (ID# 41529) through the Los Angeles County Metro Transportation Authority (MTA/METRO), a participating member of the California Unified Certification Program (CUCP).

Office: 310.598.7107

WMG is a certified DBE/SBE Construction Management Firm (ID# 41529) through the Los Angeles County Metro Transportation Authority (MTA/METRO), a participating member of the California Unified Certification Program (CUCP).