Inflation and wage increases are twin problems for companies

The challenges of managing building maintenance services can be daunting for property managers and are growing even more so with rising inflation.

In light of recent news about its extent and effects, inflation, in combination with tight labour markets, is compounding the rising wages in the frontline service workforce.

That is concerning as building maintenance services are mostly performed by frontline service personnel.

Historically high inflation across Canada and the U.S.

As inflation rates across Canada hit a new all-time high of 7.7 percent in May 2022, frontline service personnel are increasingly demanding higher wages in order to keep up with the cost of living.

This high inflation is not only confined to Canada, as inflation in the United States reached a 40-year high of 8.6 percent in May 2022.

Frontline service personnel experiencing accelerated wage erosion

The past few years have seen a trend of wage erosion for frontline service personnel that has accelerated with the pandemic. This recent inflation, however, has caused an unprecedented decline in their purchasing power for the first time in decades, leading them to an increasingly difficult financial position.

Basic necessities account for a higher proportion of wages for frontline service personnel. With over 10 percent increases across essential goods and services, they’re now spending even more on basic living expenses, such as groceries and rent to make ends meet. Therefore many of them are pushing for higher wages to keep up with the rising cost of living.

Property managers and building owners are beginning to feel the effects

Property managers and building owners are also beginning to feel the effects of rising costs as they attempt to compete in a market that is becoming increasingly more expensive.

Existing contracts with service providers offer some protection against the rising costs, but as costs continue to rise, property managers and building owners will need to adjust to these trends in their budgets.

We can already see this from the recent pushback by janitors in Toronto who came to an agreement in early May 2022 for a wage increase of 6.4 percent in the first year of their new agreement, and a 16.6 percent increase over the life of a three-year deal. This is the largest wage increase ever won by janitors in the service industry.

Property managers attempt to minimize rising costs

One way that property managers are trying to combat the increasing cost of frontline service work is by signing longer-term maintenance service contracts. By locking in a price for a longer period of time, they hope to avoid having to increase their budget due to inflation.

However, these contracts are becoming increasingly expensive as suppliers need to offset their rising costs due to their already strained margins. This cost would be carried on to property managers and building owners, who may have no choice but to either reduce their spending in other areas or accommodate the rising costs in their budgets.

Some property managers have also adapted by attempting to more collaboratively work with their service providers on the scope of work for their buildings – adjusting frequency and expectations, reassessing live-in superintendent strategy in the face of increased rent and a smaller pool of candidates, or bundling up properties under the same provider to reduce service provider fragmentation.

Tight labour markets compounding inflation

Even if inflation diminishes over time, wages of frontline service personnel are expected to continue rising or level at a new higher standard due to the tightness in the labour market which is contributed by:

• The declining labour force participation by older personnel who left the workforce, or by women who moved to provide care for children and other family members.
• An increased quit rate by frontline personnel, due to dissatisfaction with previous wages and working conditions.
• An increase in the lowest wage that personnel would be willing to accept for new jobs.

Tight labour markets more pronounced outside metropolitan areas

For service work outside metropolitan areas, the impact of labour market tightness is even more pronounced. The reduced availability of frontline personnel in smaller population pools leads to higher expectations in wages and benefits, which can have a significant impact on the overall cost of service work.

This problem is emphasized as now tenant expectations only grew in scrutinizing the cleaning practices and standards in their building due to the pandemic and considerable rent increase they have experienced.

Additionally, the tight labour market and flat rates for service providers force many providers to employ whomever they can find, leading to high attrition, loss of consistency, and in many cases, a less experienced workforce.

So while property managers may be able to employ short-term solutions through contractually locked prices and other means, service provider prices will have to go up to balance the rapid increase in worker compensation in the mid-long term.

Contradicting tenant and resident expectations

The tightness of the market when it comes to service personnel is in direct contradiction with the expectation of tenants, residents, and visitors to buildings where cleanliness and maintenance are a top priority for tenants and visitors; especially since the pandemic brought building cleanliness and maintenance to the forefront of people’s minds.

Monitoring the market 2022 and beyond

Moving forward, the industry must monitor the market closely to understand the developing trends and work with property managers to make the best decisions moving forward.