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This special report on workforce dynamics from the RSM US Middle Market Business Index provides unique insights into labor trends and strategies that are shaping the marketplace.

Executive summary: Stubborn staffing challenges reveal digital transformation opportunities for the middle market

The labor market is cooling but will remain tight by historical standards for the foreseeable future. The onus, then, continues to be on middle market companies to navigate persistent staffing challenges in pursuit of profitability. Above all, that requires organizations to invest in productivity-enhancing software, equipment and intellectual property.

“It’s essential that firms attempt to get out ahead of the curve and identify the proper mix of labor and investment capital to create the conditions under which they can grow, anticipate and meet future demand,” says Joe Brusuelas, RSM chief economist.

“This will include the integration of very sophisticated technology in the production of goods and provision of services, including machine-learning-driven intelligence and generative artificial intelligence.”

Firms also continue to optimize other workforce strategies through human capital management. Those include recruitment and retention tactics—such as remote or hybrid work, wage increases and other compensation offerings—talent experience initiatives that align with business objectives, and assessments of their physical workspaces.

Table of contents

Hire and higher: A multifaceted approach to overcoming staffing challenges
‘An augmentation of labor’: Technology forges a path to productivity
People power: Employers lean into compensation and benefits, human capital management
Remote and hybrid work are now institutional talent experience levers
Physical workspaces find their place in the modern workforce ecosystem
Explore workforce dynamics by industry
The takeaway
Methodology

Hire and higher: A multifaceted approach to overcoming staffing challenges

Steady economic growth over the past three years, coupled with long-running demographic changes in the American workforce, has manifested as stubborn staffing challenges for middle market businesses. The labor market has cooled some but still is expected to remain tight well into 2024.

The Q4 2023 RSM US Middle Market Business Index survey captured the latest evolution of those dynamics by aggregating the responses of 403 senior executives across a range of middle market companies. It was conducted by The Harris Poll for RSM from Oct. 2 to Oct. 20, 2023.

Sixty-six percent of respondents expected their organizations’ overall hiring levels to increase through the ensuing six months. That’s the greatest seasonally adjusted percentage in any quarter since the MMBI survey began in 2015.

Contrast those hiring intentions with the fact that two-thirds of respondents said they anticipated some degree of difficulty staffing open positions over the next 12 months. That is down from 83% in the same period a year earlier but still represents a sizable majority.

“You can see the expectations—they’re going to hire more and they’re keeping up with demand,” Brusuelas says. “But we’re short a significant number of workers, so firms have to address that core reality.”

Indeed, it was nearly unanimous among respondents expecting staffing challenges: 97% expect the lack of available qualified workers to be problematic over the next 12 months.

Said one senior executive in the financial services industry: “It’s difficult to locate workers with the necessary skills due to a variety of circumstances, including the aging population and the rapid speed of technological change.”

So how do companies alleviate these staffing shortages and protect their margins?

A comprehensive approach that encompasses digital transformation, compensation and benefits, and human capital management can not only address staffing challenges head-on but also help to sustain productivity amid fluctuating market conditions.

MMBI survey data indicates business leaders’ confidence in the three prongs of that approach.

Roughly 52% of respondents increased employee compensation in the previous quarter, and 68% said they would do so in the next six months. Companies also are strategically appealing to employees with a variety of talent experience initiatives, including flexible scheduling (47%) and better-defined career paths (41%).

Meanwhile, the percentage of respondents planning or considering investment in automation or IT in the upcoming year (57%) remained steady compared to the same period a year earlier (58%).

“Productivity is a function of capital and labor,” Brusuelas says. “Companies need to continue to increase their investments in software and intellectual property to keep that labor productive.”

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‘An augmentation of labor’: Technology forges a path to productivity

Business leaders recognize technology investments are crucial to combating staffing challenges and supporting the productivity of their workforce.

Two-thirds of executives surveyed expected to increase capital outlays over the ensuing six months. That’s the greatest seasonally adjusted percentage in any quarter since the MMBI survey began in 2015.

“What you’re seeing is an augmentation and enablement of labor,” says Chris Wetmore, an RSM principal and leader of the firm’s technology advisory practice. Companies frequently ask him such questions as: How do we enable our employees with newer, better technology to remove low-value work from their plates and focus on higher-value work? How do we remove as much data entry as possible from the ecosystem and focus more on process management?

Of the 57% cohort of respondents who said they were planning or considering investment in automation or IT in the upcoming year, a whopping 85% said they were doing so to increase the efficiency or productivity of employees.

By contrast, only 12% intended to use automation or IT to substitute for labor. This disparity is consistent with MMBI data since 2021. After all, much of the labor that can be easily replaced by technology already has been, says Ana Minter, an RSM principal who specializes in digital solutions and automation. And in middle market companies that are lean by nature, those workers were never in place to begin with, she adds.

The shift of employees’ duties from rote data management to valuable data analysis and insights stems from two factors, Minter says. One, employees, especially the new generation of workers, simply don’t want to do the former; and two, the costs associated with low-value tasks outweigh the return on investment—costs such as wages, employee turnover, time required and risks of human error.

Realizing gains from human insights powered by technology, however, requires more than just new automation software.

“It's really difficult to throw a large language model or AI or automation on top of a very thin data set,” Minter says. “Automation is only as good as your data set is deep.”

This underscores the value of IT investments—specifically, in modernizing platforms by migrating from on-premises infrastructure to the cloud. Freeing IT professionals from managing servers and related operational components enables them to focus on more strategic, high-gain outputs such as vendor management and network architecture.

Throughout the middle market, companies consistently strategize to put in place effective long-term core platforms, then augment them with automation tools that provide value as quickly as possible. Companies generally seek to avoid long, complex automation implementations unless they foresee an overwhelmingly compelling ROI.

Of course, in this era of elevated interest rates, it’s crucial—and more challenging—for companies to achieve their desired ROI in technology. At the same time, calculating ROI has become more complex, Minter says.

It’s not as cut and dried as staff hours saved. To quantify it now, companies must consider such questions as: What’s the cost of institutional knowledge leaving our organization? What’s the cost of a financial statement error we’re preventing? How much does it cost to replace an employee?

Regardless of how a company quantifies those costs, productivity results from digital transformation when a business challenge—not the technology—guides an investment. Most firms understand this, as evidenced by the 62% of survey respondents whose organizations were planning or considering investment in business process improvement or reengineering in the ensuing 12 months.

“If you take a broken process and throw technology at it, you just make a broken process run a slight percentage faster,” Minter says. “Never lose sight of, ‘What business challenge are we trying to solve? What is the process we're following today, and why is that inefficient?’ And then you digitize and automate.”

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People power: Employers lean into compensation and benefits, human capital management

Businesses need talented, skilled and dedicated employees to maximize the capabilities of a potent technology framework. Recruiting and retaining those workers continue to challenge middle market companies, MMBI data shows.

Fifty-five percent of respondents described their hiring needs over the ensuing 12 months as significant or moderate. Approximately 44% said they increased hiring during the previous quarter, and 66% intended to do so during the ensuing 180 days.

Companies’ human capital management efforts feature a variety of recruitment and retention tactics. Compensation and benefits top the list and remain foundational. Meanwhile, other talent experience components—such as flexibility, workplace culture and professional development—are also shaping the labor market.

Businesses begin to overcome staffing challenges when they understand how those pieces of the human capital management puzzle fit together, says Marni Rozen, an RSM principal and leader of the firm’s human capital management practice.

“You can’t just fix your compensation program and not take into account the employee experience and how you’re managing talent,” Rozen says. “You can’t just look at succession planning without thinking about long-term professional development for employees. Any one of those pieces in isolation becomes problematic.”

Middle market companies continue to face upward pressure on wages: 68% of MMBI survey respondents indicated employee compensation at their respective organizations would increase over the ensuing six months. It’s the 11th consecutive quarter for which that percentage was at least 60%.

How big are the pay bumps employees can anticipate? Respondent organizations expected to offer an average wage increase of 5.5% in the upcoming year, in line with the 5.2% average increase for the current year.

More specifically, Brusuelas foresees double-digit percentage wage increases for what he describes as the “midcareer, value-adding, hyper-productive worker.”

In addition to how wages affect recruitment and retention, the employer-employee life cycle comes into play. Rozen classifies staffing issues and solutions into three categories differentiated by their sequence in that life cycle. All three—staffing pools, retention and turnover, and succession planning—appear in some form in MMBI survey data.

In the employer-employee life cycle, staffing pools are at the beginning. “Where are you going fishing?” Rozen asks. If it’s not in a bountiful talent pool, a firm may struggle to get skilled employees in the door. To that point, 41% of middle market firms indicated they are focused on recruiting a more diverse base of employees (e.g., minority, disabled and older workers).

With retention and turnover problems, Rozen draws connections to talent experience within a company. Employee satisfaction is a function of numerous factors, of course.

For example, one survey respondent, the president of a mid-Atlantic-based technology consulting company, attributed low turnover to strong culture and management’s sensitivity to employee concerns. With most of their employees working remotely, up from about half before the pandemic, the firm makes a point of holding more employee engagement events every quarter.

“We go to a baseball game, or ax throwing, or an escape room. We go bowling,” the executive said in a telephone interview. When a work-related issue comes up, he said he doesn’t hesitate to hold an in-person meeting to address the problem.

“People like the flexibility and the work that they are doing,” he said. “They feel they are being treated fairly and equitably”—a view borne out, he said, in a recent employee survey.

Near the end of the employer-employee life cycle, succession planning becomes paramount, Rozen says. Yes, it’s a factor in employee satisfaction, but also critical to a company’s long-term success, she notes. Workers want clarity in their roles, and they want to understand how their employer is going to invest in their future. Accordingly, 41% of survey respondents said they’re helping employees to define career paths within their organization.

“When employees understand what the programs and processes are, it takes a lot of conflict out of an organization,” Rozen says. “It creates harmony when you’re working with cohesive teams and you’ve built that internal equity. Make that investment in people, and they will stick around, and you will get more productivity.”

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Remote and hybrid work are now institutional talent experience levers

More than three years after remote work took hold as a coronavirus mitigation measure, the flexibility for employees to work outside of traditional offices is now entrenched as a tactic by which companies strengthen recruitment and retention efforts.

Middle market businesses have institutionalized remote and hybrid work populations, policies and practices. This has enabled organizations to package remote or hybrid work as a key component of their talent experience.

“That’s a revolution in the real economy,” Brusuelas says.

Although the percentage of MMBI survey respondents whose companies have employees in remote or hybrid arrangements decreased to 27% from approximately 36% in the same period a year earlier, the current segment reflects a normalization and represents how remote and hybrid work have become institutionalized. The percentage of organizations making return to the office mandatory is not significantly different in this survey (29%) compared to the previous year (25%).

Employers with remote workers were asked in the survey about the actions they are currently taking or considering. The most common were:

Allowing hybrid work (65%)
Establishing remote work policies/expectations (46%)
Sourcing talent from a broader geographical area (45%)

One survey respondent, representing a manufacturer in the Midwest, said the company will soon have remote work flexibility baked into its formal policies even though only a handful of its workers are fully remote. Before the pandemic, the business—which has an annual revenue of about $50 million—had no fully remote employees. Now, it has become table stakes to offer that flexibility in order to remain competitive in hiring and retaining workers.

“We see it as a big benefit when recruiting new employees,” the executive said. He pointed to a recent hire who lives on the other side of the state from the office; the role being remote was central to the employee’s acceptance of the position. “I think remote working is here to stay and I think it will increase—that more and more employees will work at least part time remotely.”

The organization used to determine remote work needs on a case-by-case basis, but the new policy—which it plans to officially adopt in 2024—will lay out specific criteria about how employees can work from home. If those employees want to come into the office, there will be space for them there, too.

Flexibility has become critical throughout his organization, and not just for those who are designated as remote workers. When an employee’s child gets sick and has to stay home from school, for instance, remote work technologies help team members adapt accordingly.

"We had the ability to work remotely prior to the pandemic, but it just wasn’t part of our culture,” the executive said. “And there’s still some concern about that, but I would say that over the past couple of years those negative [perceptions] have eased. An employee can be productive and part of the culture working remotely.”

Indeed, MMBI survey data indicates firms have turned a corner in mitigating the negative effects of remote work on workplace culture and workers themselves.

Flexible work models have positively affected organizations’ culture, according to 60% of respondents. This is significantly greater than 39% in the same period a year earlier. Fewer companies said work location flexibility has been detrimental, decreasing year over year to 16% from 24%.

Notably, a significantly greater percentage of smaller middle market firms reported employees working remotely (33%) than larger middle market firms (20%). The openness of smaller firms to remote work relative to larger firms is evident throughout the survey data, while negative effects of remote work are more prevalent among larger firms. This may be a function of smaller firms’ relative flexibility and adaptability. (Smaller firms are those with annual revenue of $10 million to $50 million; larger firms are those with revenue of $50 million to $1 billion.)

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Physical workspaces find their place in the modern workforce ecosystem

While middle market companies have institutionalized remote and hybrid work arrangements, physical offices remain an important touch point for employees and employers.

The percentage of organizations planning to increase their number of physical offices or workspaces for employees over the next two years increased to 46% from 25% in the same period a year earlier, according to MMBI survey responses.

This jump does not necessarily indicate the pendulum is swinging further back toward full-time in-person work. Instead, it reflects the ongoing evolution of workforce strategies. Executives are rationalizing the type of spaces they need. They are assessing the value of capital investments in buildings, in addition to technology.

“We’re going to go through a period of adjustment for utilization of square footage in downtowns,” Brusuelas says. “But we must be careful not to generalize, because each core metro area is going to face different conditions."

That evolution and variety were evident during phone interviews with survey respondents.

The executive for the mid-Atlantic-based technology consulting company said he could envision converting some of their office space to other uses, even if it’s not related to the company. Because his company owns its building, there is no immediate pressure to downsize. Still, the company’s need for space to accommodate workers is lower than before the pandemic.

In New York City, the owner of a food importing company is rethinking his office space now that his 14 employees are working in person two days a week. His current lease, in an older building with few amenities, expires in 2025. He said he is looking to relocate to a building with better security and health protocols, but with up to 50% less space.

Commercial real estate trends warrant close monitoring, given evolving economic conditions, stubborn staffing challenges and varying sentiments about in-person work across industries and geographies.

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Explore workforce dynamics by industry

Construction

Faced with an ongoing shortage of labor, the construction industry has been boosting wages faster than the overall economy. Before the pandemic, job openings in the sector were hovering between 100,000 and 250,000. By December 2023, openings jumped to more than 430,000, says Nick Grandy, an RSM senior analyst for construction.

Aging workers and a lack of new entrants to skilled trades, such as carpentry, have contributed to the shortage. The dearth of workers tends to slow project completion, Grandy says. Jobs that would ordinarily take six to eight months are requiring up to a year or more, even as supply chain disruptions and inflated material costs have normalized.

“It’s hard to meet a schedule when you just don’t have the workers,” he says.

On the residential side, the pipeline of building activity remains fairly healthy, albeit too slow to meet demand, Grandy notes. U.S. housing starts were at 1.37 million in October 2023, still greater than at any point from 2010 to 2018. Wages are growing amid inflation, which has also driven up mortgage rates and added to the price of new homes.

Homebuilders are still building; that’s driving residential growth.

Nick Grandy, RSM Construction and Real Estate Senior Analyst

“Homebuilders are still building; that’s driving residential growth,” Grandy says.

Meanwhile, $1.2 trillion in government-sanctioned infrastructure spending is adding to the competition for labor, he says, with more workers needed to handle federal, state and municipal projects.

And while the construction industry has largely rebounded from pandemic disruptions, early retirements have exacerbated the shortage. Also, laborers who had been sidelined previously are searching for more stable work.

Larger contractors are able to withstand the ebb and flow of project activity better than their smaller counterparts, Grandy says, because their portfolios tend to be larger and more diversified, and they have a more versatile labor force. Those specializing in nonresidential work, for instance, might have the ability to complete projects ranging from power stations to water treatment plants.

Solving the labor conundrum is no easy fix, he says, but more flexible policies around immigration and temporary work permits could add more foreign workers to the project rolls. Improved training and benefits can help to retain existing workers, while programs to attract a more diverse applicant pool can add underrepresented groups to the industry.

The construction sector has gradually been adopting more technology to help offset the lack of personnel, adding robotics and drones to job sites, and productivity-enhancing tools such as building-information modeling in the planning stages.

While these tools can mitigate some shortfalls in staffing levels, Grandy says, they are no substitute for well-trained workers.

Consumer products

For consumer businesses, labor challenges play out somewhat differently in the industry’s subsectors, says Mike Graziano, an RSM consumer products senior analyst. However, one thing remains the same across the industry: The cost of labor has been and will continue to be a risk for businesses, whether they’re a retailer or food and beverage company.

“Labor across sectors will be driven by margin performance,” he says. “If sales perform and margins are strong, and technology deployment lags, businesses will hire accordingly to keep up with demand. However, if margins are tight, a leaner workforce is needed, but can that workforce continue to meet future demands and scale? It’s something companies must continuously weigh.”

Graziano also indicated ongoing concern about retaining employees. “To keep them,” he says, “businesses have been paying higher wages, which equates to higher costs, thus adding to margin pressure.”

Technology implementation for many consumer companies can bridge workforce gaps and improve efficiencies, but Graziano says it’s not a one-solution-fits-all scenario.

For back-office tasks, technology can optimize functions such as predictive analysis, payroll, scheduling, accounting and more. It’s not entirely about replacing the human element, he says. It’s more about addressing those repeated tasks that technology can perform faster, with greater accuracy and efficiency.

“Technology will certainly shift labor positions and needs in consumer businesses,” Graziano says. “An inventory analyst, for instance, may be realigned to something else in the company, so we may not necessarily see replacement of workers, but movement to other parts of a business where talents and knowledge can be applied elsewhere.”

Graziano adds that it’s important for companies to assess their needs regarding business demands and workforce strategy to identity appropriate technologies. Considerations and technology outcomes could include:

Enabling the workforce to focus more on important aspects of the client experience and business
Optimally using real-time data and information availability, accelerating better decision making
Improving the efficiency of manually intensive work
Creating an environment focusing on safety, training and knowledge sharing

Middle market consumer businesses tend to lag in implementation of technologies compared with larger competitors due to lack of resources. However, as technologies like generative artificial intelligence and machine learning continue to evolve, investment in these areas will be critical.

Mike Graziano, RSM Consumer Products Senior Analyst, Director

“Middle market consumer businesses tend to lag in implementation of technologies compared with larger competitors due to lack of resources,” says Graziano. “However, as technologies like generative artificial intelligence and machine learning continue to evolve, investment in these areas will be critical.”

“That’s why it’s key for middle market companies to evaluate their consumer preferences, inventory needs, sales cycles and more to apply the right technologies that are most beneficial for the company in the months and years to come.”

Financial services

Even with headlines of banks cutting positions in 2023, financial services organizations still face challenges in hiring for more tech-focused roles, such as those in data analytics and information technology, says RSM financial services senior analyst Brandon Koeser.

Along with the continued importance of competitive compensation and benefits packages, he anticipates that 2024 will bring more formalized hybrid work policies as organizations balance their desire to bring people back together in person with employees’ desire for flexibility.

If you as an organization are not investing appropriately in your talent base, and if someone else beats you to that, the ramifications to your company affect your revenue and profits and also the people.

Brandon Koeser, RSM Financial Services Senior Analyst

“Employers say, ‘We want to keep our people,’ but what are you really doing to keep your people?” Koeser says. “If you as an organization are not investing appropriately in your talent base, and if someone else beats you to that, the ramifications to your company affect your revenue and profits and also the people.”

Along with offering flexibility, strategic technology investments will be paramount. Technology will have to be more embedded in day-to-day aspects of employees’ roles because those technologies are going to have to drive more efficiency to compensate for fewer workers, Koeser says.

Upskilling or reskilling employees in areas adjacent to their current roles will also help organizations do more with less. For instance, some banks are reskilling tellers to become universal bankers, which involves more responsibilities beyond tellers’ predominant focus on taking deposits and cashing checks. By reskilling such roles, the bank enables employees to support more branch operations and overall growth.

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Health care

The health care industry continues to struggle with a decreasing workforce and labor supply. According to the U.S. Bureau of Labor Statistics, total employee head count for the industry as of December 2023 had increased by 3.9% since the pandemic began. However, actual health spending increased a sizable 24%, according to the Centers for Medicare & Medicaid Services’ estimate of national health expenditures.

Simply put, demand has greatly increased while workforce numbers essentially remain unchanged.

When examining what’s driving this continued tight labor market, Matt Wolf, an RSM health care senior analyst, says it’s important to note both clinical and nonclinical aspects of the health care sector. It makes solving the labor problem even more complex.

“On the clinical side we’re seeing physician burnout,” says Wolf. “For physicians to see, treat and communicate with their patients, there is not enough time or capacity in the day.”

In addition, the industry is battling some unexpected competitors on wages—retail and fast-food restaurants.

“We’re seeing positions like lab techs and even LPNs [licensed practical nurses] lured away from skilled care and other subsectors in health care to work at large retailers or fast-food places earning the same hourly wage or more than they would receive in health care,” Wolf says.

On the nonclinical side—back office, scheduling, admissions and more—the work volume is vast, but Wolf says technology might be a smart solution for this shrinking workforce.

Virtual work fits well with many of these nonclinical roles, allowing organizations to find the best people for the right positions using virtual technology to connect them to the office and other professionals.

Matt Wolf, RSM Health Care Senior Analyst, Director

“Virtual work fits well with many of these nonclinical roles, allowing organizations to find the best people for the right positions using virtual technology to connect them to the office and other professionals,” he says. “In addition, technology can automate repeated tasks in billing, scheduling and more, bringing efficiencies, decreasing errors and, in the end, saving the organization money.”

He cautions, however, that providers should be mindful that technology is not meant to replace human workers. If technology displaces workers, it benefits the organization to retrain and realign employees with the organization in more problem-solving and strategic roles.

“These employees know the history of the organization,” he says. “They know health care; it benefits the organization to keep them rather than letting them go.”

And on the clinical side, particularly around physician burnout, technology—especially generative artificial intelligence—can be helpful for a variety of tasks, including responding to in-bound patient messages, assessing testing and screenings, creating clinical notes and discharge summaries, and more. But, Wolf adds, organizations must be diligent with governance and data security to protect patient information and ensure quality of care.

Manufacturing

In the manufacturing sector, offering flexibility to employees can look different for roles on the factory floor versus white-collar positions.

“For production line employees, you can’t really say, ‘You only need to show up on-site two days each week,’ so there’s still some of that friction there,” says Jason Alexander, an RSM principal and leader of the firm’s industrials practice. Because of that, it will be important for manufacturers to not only enable flexibility for roles where it makes sense to do so, but also emphasize the critical role of factory floor work.

It’s about making sure people in other parts of the organization understand the importance of the work happening in the manufacturing facilities and how best to support those people in their roles.

Jason Alexander, RSM Enterprise Leader, Industrials

“It’s about making sure people in other parts of the organization understand the importance of the work happening in the manufacturing facilities and how best to support those people in their roles,” says Alexander.

Ensuring that employees across all operations feel valued is especially critical amid various workforce pressures. Manufacturers also need to think more intentionally about their succession planning and knowledge transfer process as older employees retire, Alexander says. That’s one area where technology can be an asset; digitizing processes can allow smoother transitions as employees move into new roles.

In terms of factory operations, technologies such as digital simulations will also help manufacturers become more efficient. Digital twins, for instance, can help businesses run various supply chain scenarios so teams can better prepare for potential changes in demand.

“Having technologies to help you analyze and run through all those scenarios in a more efficient and effective way, that will help companies ultimately make better decisions,” says Alexander.

Professional services

Law firms are investing in technology for two main reasons, both of which affect the legal profession’s workforce, says Sonya King, an RSM business and professional services senior analyst.

“First, law firms want to drive productivity,” King says. “But second, tech solutions mean they don’t have to hire as many associates year over year.”

Law firms are looking into automation technologies and artificial intelligence that replace repeatable, low-skill tasks. Such tasks include going through case files, digging up precedents, taking notes and similar activities.

We’re not sure how and when technology is going to make its biggest impact. But it will certainly have a massive influence on law firms.

Sonya King, RSM Business and Professional Services Senior Analyst, Director

“These are tasks that an intern or an associate would typically do,” King says. “But AI can do all of that.”

King believes that AI will enhance productivity but not replace the need for lawyers with a robust knowledge base and strong critical-thinking skills. New hires to law firms, usually at the associate level, will be expected to tackle a steeper learning curve than in years past.

“I wouldn't say it will be on their first day,” King says. “But associates will need to handle higher-level tasks sooner than they historically have.”

King adds, however, that it may be some time before law firms understand the full ramifications of their technology solutions.

“We’re not sure how and when technology is going to make its biggest impact,” she says. “But it will certainly have a massive influence on law firms.”

Real estate funds

Real estate investment firms are unlikely to add investment positions to their staff in the near term, as the uncertain economy has slowed deal flow in the multitrillion-dollar market.

“Do you want to take on more overhead in an environment where you don’t know if you’re going to be able to sell your assets?” says Sarah McKevitt, a partner and senior real estate analyst at RSM. “They’re probably going to be very, very selective in terms of who they want.”

Do you want to take on more overhead in an environment where you don’t know if you’re going to be able to sell your assets? They’re probably going to be very, very selective in terms of who they want.

Sarah McKevitt, RSM Real Estate Senior Analyst, Partner

That means a very limited selection of new hires from top-tier business schools with analytical skills to handle financial modeling and due diligence around potential acquisitions, she says.

On the administrative side, however, real estate investment firms are struggling with the same shortages for qualified administrative staff as other industries, McKevitt says.

Investment firms will continue to run a lean staffing model, she notes, unwilling to take on any overhead that can eat into returns at a time when the market faces challenges such as downsizing of commercial offices following the shift to hybrid work.

“The money they do bring in needs to go into the (real estate) asset or into marketing the asset to generate more cash flow,” McKevitt says. “They want to be able to generate a return for investors—and ultimately for themselves.”