Following a two-year industrywide hiring spree, demand for commercial real estate pros is cooling off.

The slowdown coincides with a precipitous decline in property transaction volume, recruiters said. The roughly 24-month runup in sales stalled this year amid rising borrowing costs, bank failures and fears of a recession.

The upshot: Companies that buy, develop and manage commercial real estate are pausing to take stock of their portfolios — and their staffing levels. That has slowed the pace of search assignments to a “normalized” level, as firms focus on strategic hires and retaining top talent, said Gemma Burgess, chief executive of Ferguson Partners. Companies “are preparing for the worst but hoping … that we are going to be able to get back to business [soon].”

In the months ahead, recruiters anticipate a “material moderation” of search work. “The rise in interest rates, the frozen debt markets and increasing conservativism among equity investors has created a situation where the markets have slowed down, resulting in searches being put on pause or [not kicking] off as hiring managers wait and see,” said Anthony LoPinto, managing partner and real estate global sector leader for Korn Ferry. Against that backdrop, “there will be an appreciable pullback in recruiting activity, at least through the balance of the year.”

That said, recruiters note that search activity is still ahead of where it was before the pandemic. The slowdown also isn’t consistent across the board, with some functions and levels more heavily impacted than others. Real Estate Alert’s annual review identified 56 recruiting firms working in the sector.

Not surprisingly, the most dramatic shift has been in demand for investment professionals. A year ago, that area was “one of the hottest,” said Deb Barbanel, who leads the global real estate practice at Russell Reynolds Associates. Now, she said, “that frenzy has definitely slowed.”

For firms looking to add acquisition pros, “this is an opportunity to bring in talent,” said Barbanel. She added that many professionals are thinking about the next cycle and are reflecting on whom they want to work with for the next seven to 10 years.

This reflection period also means many executives have the time to meaningfully explore other career options. But they are proceeding with caution. “In this environment, it is a process that is taking longer for candidates to get comfortable that it is the right move for them,” she said.

There has also been a notable drop in demand for junior staffers. Outsize hiring of associates and analysts over the last two years pushed up salaries for the sector’s least experienced staffers and led to frequent turnover. But that heady market seems to have cooled, with fewer entry-level positions available today.

That will afford firms looking to add junior staffers breathing room and provide some relief from skyrocketing compensation packages in the short term. But it also could create a “catch-up effect” later, when firms are in the market looking to add staffers with several years of experience under their belts. “It will make those options more expensive down the road,” said Kent Elliott, a principal at RETS Associates. “The effect compounds over time.”

In the meantime, companies that are looking to hire are seeking candidates who can wear several hats. “For the roles we are working on, [firms] are trying to redefine the box,” said Lisa Flicker, managing partner and head of real estate at Jackson Lucas, noting that her clients are looking for specialists who also have skills in areas such as asset management, marketing and even content writing. Companies “want these jacks-of-all-trades with deep specializations.”

Firms also are asking their current staff, and particularly acquisitions personnel brought on in the last few years, to work in other areas, particularly asset management. In general, the focus has switched to more operational-intensive roles. Companies are still looking to add asset managers and chief operating and financial officers — positions that can help maximize the value of existing assets and set firms on a steady path.

Some companies also are still looking to grow. “Firms are trying to diversify their portfolios, their markets and their asset types,” said Kate Keller, principal of Keller Augusta. To that end, demand remains for pros working in certain sectors, namely multifamily and industrial, as well as specific geographies. While search assignments in Keller’s New York office are down, the South Florida office and newly opened outpost in Dallas are “on fire,” Keller said.

Additional search work also could arise as firms seek to add workout specialists or pros versed in opportunistic strategies arising from current market conditions, said LoPinto, of Korn Ferry.

In general, the commercial real estate sector continues to attract more institutional capital, and thus more opportunity to put that money to work. “Money invested in real estate is like a river; it’s going somewhere,” said Steven Littman, president and managing partner at Rhodes Associates. “The world of real estate keeps expanding … into other areas of investment” that can include buying distressed debt or bonds, for example. He said his firm remains as busy as ever but has shifted to match the types of investment strategies clients are pursuing.

All told, competition for talent in the sector is not expected to abate substantially in the near term. “Unemployment in commercial real estate still remains very low,” RETS’ Elliott said. “The pool of unemployed talent out there still remains minuscule in many markets and many functions.”