Real Estate Recession

Why are Real Estate Firms Turning to AP Automation to Weather a Potential Recession?

Real estate management firms are bracing for what could be a tumultuous time ahead. 

The current economic environment has businesses across industries tightening their belts and looking for ways to future-proof amidst growing uncertainty. 

To understand how businesses are navigating a potential recession, we surveyed 500 middle market professionals in August 2022 to see how organizations are responding to these uncertain times. Eighty-eight percent of survey respondents said they are concerned about the current state of the economy. 

Here’s a look at what else they told us and an even deeper dive into how uncertainty is impacting real estate firms. We’ll look at what’s keeping them awake at night, how prepared they feel for a potential recession, and how they are leaning on technology to help them through tough times and a potentially troublesome future.

How did real estate management firms previously fair through economic disruptions?

When the 2008 financial crisis struck, real estate management firms were largely operating as they had been for decades. The recession caught many off guard.

“Real estate management firms may have felt uniquely recession-proof because, regardless of the state of the economy, people and businesses need physical spaces to live. But, the previous recession fundamentally changed the dynamics of the real estate industry. Firms saw first-hand that only the strong survived and grew their business and their strength depended on modernization.”

Brian Thayer, Vice President & Business Line Executive, Real Estate, AvidXchange

The recession proved that firms needed to operate more efficiently. Those who couldn’t adapt were often gobbled up by stronger players with the capital to grow through acquisitions. As a result, the industry saw considerable consolidation. 

How is the industry faring today as it faces yet another challenge of a global pandemic that led to increased demand for housing and a decreased need for office space?

Forbes reports that the housing market has been in a recession since July 2022. JP Morgan’s midyear commercial real estate outlook shows that the commercial space is holding strong, but the firm warns of climbing interest rates. 

Both have the same worry — higher rates impact buyers’ ability to purchase or pay. What other worries are on their minds? Inflation.  

Sixty-seven percent of survey respondents said inflation is impacting the industries/customers they work with most, and Thayer said the same holds true for real estate firms. 

Higher prices impact firms’ maintenance, repair and operations spending (MRO), making it more expensive to stay in business. 

Take, for example, the student-housing rental market. “Firms have to do what’s needed to keep students coming in — repainting, replacing a broken refrigerator, keeping up with maintenance — and those expenses never go away, regardless of what they cost,” said Thayer. “It’s the nature of the business and it’s necessary for growth.”

Growth is a high priority for the majority of businesses we surveyed. Unfortunately, it’s even tougher today because of staffing shortages. Nearly two-thirds of those surveyed find retaining talent a high priority. It’s an uphill battle for many.

“On the real estate development side, builders are facing significant delays and some can’t finish projects because they don’t have the labor or the supplies needed to do the job,” said Thayer. 

Organizations are coping with the shortage and growing economic uncertainty by searching for better ways of doing business. 

Seventy percent of survey respondents said their company is adjusting its budget over the next 12 months with 60% looking for ways to reduce costs and 66% looking to create efficiencies to increase productivity and improve profit margins. 

Thayer said real estate firms are cutting costs by foregoing expensive extras like fancy lobbies and trimming back recurrence maintenance, but many of their costs are simply unavoidable. 

So how do they protect their budgets? Real estate firms are realizing that technology holds the key to doing more with less.

Real estate management firms lean on AP automation to prepare for economic uncertainty

Nearly half (48%) of our survey respondents said investing in technology is a high priority for their business over the next 12 months.  

Technology investments are one of the most impactful ways to create time and cost-saving efficiencies. In fact, 30% of survey respondents said they are preparing for the forecasted recession by investing in technology to do just that.

Where are companies putting their technology investment dollars? 

Thirty-six percent of survey respondents are focusing investments on automation, including accounts payable (AP) solutions that replace manual back-office processes like invoice processing and bill pay that are critical to operations. 

Automated AP solutions are especially helpful to real estate firms because of the industry’s notoriously complex, time-consuming AP processes. Firms often own multiple properties, some across state lines. Bills for services and supplies are sent to individual buildings and property managers must make sense of them, reconciling what was billed with what was ordered and actually delivered. From there, invoices travel to the corporate office for approvals and payment processing, which adds additional time to the already lengthy process. 

“In real estate, people and properties are scattered so AP is a very disconnected, inefficient process that takes a very long time,” said Thayer. “By doing away with paper, automation eliminates the crazy shuffle and speeds things up.”

AP automation also offers visibility into cash flow, providing trails and tracking records. With online workflows, data can be shared in real-time with anyone who needs access, and they can leverage it to make important decisions about the business. Automated payments, including e-payment options, ensure the firm’s bills are paid accurately and on time.

Automation also helps real estate firms with retention and hiring efforts by providing flexibility —tasks can be handled from anywhere, at any time — and it reduces stress on staff, making room for more strategic, satisfying work. It also allows staff to handle greater workloads without adding more employees.

“Technology is a great way to retain people because by investing in technology to make their jobs easier and better, you are investing in them and their careers,” said Thayer. “You’re also empowering them to do more for your business.” 

The importance of automation technology was uncovered in AvidXchange’s AP Professional Career Satisfaction Survey conducted in partnership with The Institute of Finance & Management (IOFM) earlier this year. The survey found that the more automation in a company’s finance department, the more satisfied finance professionals are with their roles and the more they agree that “my job utilizes my skills and abilities as much as it could.”  

It’s likely that new hires, including Millennials and their younger counterparts, will expect the technology and go elsewhere if they don’t have access to it in their current roles. 

Are you ready to help your real estate firm prepare for the future?

While no organization, real estate firms included, can predict whether a recession is imminent, they can prepare for the potential by learning from others, understanding their priorities and investing in technology to modernize and protect their business. 

For more information about how automation can fortify your real estate management business, download our white paper, “How Middle Market Finance Teams are Preparing for a Recession.”

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White Paper: How Middle Market Finance Teams are Preparing for a Recession

Our survey results uncover the middle market’s perception of the economy, priorities over the next 12 months and budget adjustments to account for a predicted recession.