With real estate management expertise in such short supply, how do you retain the best talent? Andrew Livesey reports

The ‘War for Talent' has been widely debated ever since 1998 when McKinsey & Co published the results of a year-long study of working trends involving 77 companies and almost 6,000 managers and executives. McKinsey's findings were confident and conclusive: "The most important resource over the next 20 years (from 1998) will be talent: smart, sophisticated business people who are technologically literate, globally astute and operationally agile. And even as the demand for talent goes up, the supply of it will be going down."
Ten years since this study took place there has never been a more apposite topic for the real estate industry. As private and institutional investment flooded into the real estate market over the past few years, the number of job opportunities rose tenfold.
This peaked last year when companies faced a particularly fierce, candidate-driven market and battled to recruit the best individuals for the job, while struggling to retain their existing employees. Consequently, the industry saw an unusually high level of staff turnover and a very dramatic rise in remuneration levels.
This imbalance in supply and demand of qualified property professionals has been exaggerated by the recession of the early 1990s, when firms did not recruit graduates.
There are now a limited number of workers in the mid-thirties age-bracket, resulting in a small pool of talent for middle management vacancies. In the wider sense, the reasons for a shortage in executive talent revolve around a growing economy, changing demographics, a surge in emerging markets and a general shift in attitude towards work.
Firstly, there is the problem of an ageing and migrating population. According to the Wall Street Journal, ‘the tip of the baby-boom generation is 57 years old and starting to retire. That age group ranges down to 39-year-olds, and the generation below the baby boomers is only half the size. Despite new legislation, ageism is still, in our view, rife in every industry, and real estate is no exception.
The demands of long working hours, pressure to perform and frequent travel lead most clients to a younger and hungrier professional with fewer family commitments.
Despite this, there's no doubt that today's executive is a more discerning employee who wants a better work-life balance. Add to this the increasing number of professionals who, according to a recent survey by the Economist, are choosing to progress their careers in emerging markets such as China, India and the Middle East, and one can start to understand why the executive talent pool is leaking.
For pension fund managers, the problem is amplified. Not only are these companies competing between themselves to produce higher than average IRRs, they also have to contend with an influx of more entrepreneurial, boutique vulture funds poaching their best professionals.
Top tier fund managers have been at liberty to name their price as companies battle for the most prodigious talent to run their investments. In some cases, executives have been lured away by 50% base salary increases and guaranteed bonuses of up to 200%.
Who can blame these real estate fund managers for grabbing these opportunities when, for many years, they were the poor relative to other asset classes? As the market climate changes, however, one hopes that they have realistically weighed up the benefits of a fat salary against long-term job security.
With a greater sense of ambiguity hanging over the market in 2008, the decision to work for a smaller, higher risk firm could turn out to be short sighted.
In such challenging times, it is all too easy for companies to dilute bonus incentives and focus more on the business than the staff. However, now is the time to focus on retaining your top talent. With consolidation rather than expansion very much the by-word among our clients at present, pension fund managers need to think very carefully about how they continue to develop and motivate their key staff. Remuneration alone will simply not suffice and as a result companies are having to consider more creative ways of encouraging performance.
These incentives include flexible working hours, provision of mentoring and coaching, more paid (and unpaid) holiday days each year, flexible working locations (work, home etc.) and very closely defined Key Performance Indicators for their top executives.
The commercial real estate market has been buoyant for several years with relatively easy money to be made and it now seems that the time has come for the industry to correct itself. From a top-end recruitment perspective, there is also an increasing sense of unease. Summit has already had some director-level assignments put on hold due to this impending uncertainty and an increasing amount of companies are issuing recruitment freezes for the next three to four months.
Despite this, there are still a number of senior level opportunities as the sector continues to need high calibre professionals to drive businesses forward, albeit the emphasis of these positions seems to have switched from an investment focus to asset management and development. If anything, the market is moving in favour of the more established pension funds where there is a steady investment stream.
This more difficult market will be a real test for the many professionals who have negotiated large salary increases over the past couple of years. Employers will expect high performance and return for their money and it would come as no surprise to see some fall-out as low-quality investors are flushed out of the market.
This should also lead to a better balance in the supply and demand of real estate executives. However, the ‘damage', to some extent, has already been done.
From our experience, the average remuneration of a fund manager at director level is now between £120,000 and £150,000 plus 100% to 200% bonuses and benefits (including long term incentive plans or fund equity where possible), which is significantly more than two years ago.
It has, however, narrowed the gap in pay between real estate investment managers and investment managers responsible for other asset classes.
For the industry as a whole, this alignment has been long overdue yet no one expected it to happen quite so quickly or ferociously and it will be interesting to see how it pans out.

Andrew Livesey is founder and managing director of Summit Search and Selection