The United States hotel industry has seen a supply explosion over the past year, with STR clocking in growth at 2.1 percent as of February 2019. That’s the highest rate of growth since the end of the Great Recession in 2010. What hasn’t kept pace, however, is skilled labor entering the workforce in the construction industry. That has put many hotel developers in a tough place as they look to build hotels in booming markets and face a shortage of qualified general contractors bidding on their projects—and that’s often because they have trouble filling their own labor force.
“There’s so much growth and construction overall across the company, and there’s more construction than there are skilled people,” said Suzanne Saunders, VP of design and construction at Hospitality Ventures Management Group. One area she said her company is feeling the pain is when it’s time to hire a project manager. Simply put: The qualified people already have jobs.
“The result is that we have to go out and use a recruiter or offer better pay and benefits to find those folks,” she said, causing project costs to surge.
Lee Shuman, director of project management for Peachtree Hotel Group, said general contractors with quality crews are difficult to come by because a new generation of workers isn’t wooed by the construction industry as a viable career option. “There has been a vacuum among new skilled labor to the market over the past two decades with many more young students going for advanced degrees and with the onset of some technologies,” he said. The value of yesteryear of making things by hand has become less valued, and therefore fewer people have a desire to enter the field, he added.
Saunders said technology will continue to make its entry into the construction industry as a way to combat the labor shortage, however. “As virtual reality and 3D modeling gets better, from a construction standpoint, we’ll start to see more model rooms may go away because we can do it with virtual reality versus physically building a room,” she said. “As tech gets better, prices will come down.”
As for how the story will continue to unfold, Shuman said only time—and the economy at large—will tell. “During the next recession if you see skilled labor cost drop sharply or stay fairly consistent, simply stabilizing, that will be very telling,” he said. “This is a supply and demand equation where we need more supply (more skilled labor entering the market) to offset the demand. Or we need the demand to reduce to offset the lack of supply we currently have in this labor market.”
Benton Convention Center. Photo credit: Hospitality Ventures Management Group
The Challenges and Solutions
Finding skilled workers is one of the top problems when it comes to finding and working with the right general contractors. Although a hotelier’s relationship might be great with the GC, the issue is that the company may be struggling to fills its jobs.
“There is a shortage of skilled labor as the trade workers have been decimated by the last recession when many of the skilled workers left the industry for more education and a better or more stable career. Many of those have not returned to the industry still today,” Shuman said.
Unfortunately, Shuman said the solution is a costly one for hotel owners and developers: The construction industry needs to pay more money to make the jobs “marketable” to a younger generation. And of course, those costs get passed on to developers.
“It’s essentially recruiting the younger generation back into this field and competing with other careers,” he said. “This is not a short-term solution, as the only short-term fix is to pay more than the next guy building a hotel.” But, he said another solution could be to use that labor available in a more efficient way by focusing on panelized wall construction instead of traditional framing and ultimately pre-fabricated construction.
“The pre-fabricated industry can use the limited skilled labor market more efficiently—one factory building components instead of subs going from job to job and state to state, no weather constraints, package skilled labor in an ‘assembly line’ for more components versus managing all trades on site,” he said. “Pre-fabrication solutions also can offset geographical labor issues. The issue we have currently is that the pre-fabrication solution is still not the most cost effective way to build, yet—but I empathize ‘yet.’”
But even if there’s a lack of skilled labor to fill a general contractor’s labor well, the number of GCs available to bid on a job is drastically dwindling. Saunders likes to see at least five bids come in for a project. Lately, she’s only been seeing about two bids on a good day.
“You’re not getting the participation you normally would from contractors,” she said. “Most people want at least three bids to come in to be competitive, and the usual two-week bid time can sometimes then turn into a four-week bid time.”
The solution relies within relationships, Saunders said. “If you have a contractor that you use often, you can usually negotiate a contract with them. Keep them busy, and you’ll keep them loyal.”
And she said that loyalty can work both ways. If a contractor knows there’s work in the pipeline, building a loyal crew on the construction side can be an easier feat. “Make them part of your family so they always know what’s in your pipeline,” Saunders said.