U.S. hotel companies are facing a shortage of construction workers just as they are building new brands and properties. The result: delayed projects and higher costs. The industry will have to get more aggressive to recruit workers if it plans to keep the momentum going on its expansion plans.
The hotel industry is experiencing one of the tightest construction labor markets in years, threatening to delay new builds and renovations at a time when major hospitality companies have planned the most robust pipelines in years.
Hotel companies big and small have reported that they are dealing with a severe shortage of qualified construction employees from the electricians and carpenters working on the ground to the managers tasked with keeping projects on schedule.
Research firm STR said the number of hotels in construction as of November has increased 3.9 percent over the same time last year. Meanwhile, the U.S. Bureau of Labor Statistics reports that there are about 380,000 unfilled construction jobs in all markets. Another 747,000 construction workers will be needed by 2026.
“While we see great momentum on new deals and the growth of our pipeline, we are seeing construction delays and cost increases that will have an impact on the timing of openings,” said Hyatt Hotels Chief Financial Officer Joan Bottarini during an earnings call Oct. 31.
The construction industry doesn’t seem optimistic that it will be able to reverse the trend.
In a survey of 2,000 construction firms released over the summer by Autodesk and the Associated General Contractors of America, 80 percent said they are having a hard time filling hourly craft positions that represent the majority of the construction workforce.
That will likely continue into 2020, with 73 percent of respondents saying finding skilled workers for those jobs will be hard or even harder.
“So clearly, as you’re trying to get the different subcontractors that you need to finish, whether it’s the plumbing, whether it’s the wallpapering, whether it is helping with the furniture, etc., there’s obviously a tough time getting that labor in a really tight labor market,” Marriott International Chief Financial Officer Leeny Oberg said at a Barclays lodging conference on December 4.
The root of the problem can be traced back to the 2008 recession when hotel companies put the brakes on construction projects, forcing workers to find employment elsewhere. Most recently, hostile immigration policies are posing problems because the construction industry had relied so heavily on foreigners to supplement the workforce.
The industry ranks are not being replenished by the new generation entering the workforce. Young workers find more appeal in fields such as technology rather than an occupation that requires them to build things from the ground up, in many cases physically.
“In our experience, this is a generational shift in occupational interest,” said Ernest Lee, managing director of development and investments for North America at citizenM Hotels, which has 19 properties worldwide. “Younger people in the workforce do not find the construction industry as attractive as previous generations once did.”
Lee said the company is seeing a shortage in markets such as Florida, New York, New England, Chicago, and California. The areas where the company is hurting the most is in the mechanical, electrical, plumbing, and carpentry trades.
Companies and developers have had to take measures to attract more workers.
Many construction firms said they have had to boost pay and offer incentives and bonuses to attract qualified people. They’ve also taken a more proactive approach to cultivating the workforce, with 46 percent in the Autodesk survey saying they have launched or expanded in-house training programs.
The result has been escalating construction costs, from at least 3 to 6 percent in most metropolitan areas in the United States, Lee said.
“These labor shortages are slowing down construction, because labor makes up the majority of construction costs and hotel revenue has not grown commensurately,” Lee said.
Some companies have simply halted projects or changed the way they operate.
Prefabrication of building components such as modular rooms in factories has become a more common practice as a way to redistribute labor needs. CitizenM used modular construction to build its citizenM New York Bowery, which opened in late 2018.
Mehul Patel, CEO of hotel management and construction company NewscrestImage, said projects are taking anywhere from six to 12 months longer to complete.
To speed up the process, his company has employed modular construction. His company built the AC Hotel Oklahoma City Bricktown in Boise, Idaho, then transported the pieces to Oklahoma.
“The business has become very complex,” Patel said. “Everyone is growing. Everyone is working in the same space. It’s challenging. You’re going to have to think outside of the box.”
The company has sought workers outside of some of the cities they are building in. Right now, he is working on a project in Fort Worth and transporting laborers from Wichita Falls, which is about 115 miles away. It serves a few purposes, first filling the gaps in labor and also saving money because he is not paying Fort Worth prices. He does have to house the workers but said the benefits outweigh that responsibility.
“We find a savings and get a better work quality and much more committed labor force,” he said.
David Mansbach, managing director at AETHOS Consulting Group, said the situation has caused much consternation among his hospitality clients. In particular, smaller to mid-sized hotel companies are wondering if it would be best to create in-house construction departments to fill the higher-level positions, a potentially costly solution. Large legacy hotel companies already have in-house departments for such jobs.
The bottom line is that all hotel companies have to do a better job to cultivate talent.
Though construction is their biggest source of angst now, the industry has been seeing shortages in workers in all departments.
During the recession, Mansbach said, “they were reactive putting out fires. They didn’t value human capital during that downturn and they lost that human capital, and it’s not coming back.”
“Companies need to get really serious and say, this is an 8 to 10-year process and really put some real programs together for career progression,” he said. “They have to understand what the next generation wants and fill a pipeline rather than a short-term void.”
With 1,580 hotels under construction in the U.S. and ambitious plans for expansion and new brands, the hospitality industry is going to have to make a long-term commitment to finding and nurturing those people who will carry out their agendas.
Tags: construction, employees, hyatt, marriott
Photo credit: Hotels are facing a shortage of construction workers, Prefabrication and modular construction is one way hotel companies are trying to redistribute labor during the construction worker shortage. Carl Campbell / Flickr