Hybrid job ‘bigger concern’ than inflation or recession for commercial real estate: expert

Commercial real estate is down and hybrid work is a big reason, according to one real estate executive.

According to MSCI data, commercial real estate transactions fell 22% in the second quarter from a year earlier. And while inflation and the economic downturn weigh heavily on real estate investors’ minds and “create some doubts,” Marcus and Millichap CEO Hessam Nadji said “it’s not really a long-term concern.”

“The biggest concern is this hybrid work environment,” he said on Yahoo Finance Live (video above). “We’re seeing a lot of focus on services like fitness, child care and even entertainment to motivate workers to want to come back at least three days a week, four days a week, whatever depending on the company. There’s a lot of focus on how to create a reason for people to want to get together and come back to the office space.”

Amid the pandemic, many companies have been forced to change their workplace setup from an office to remote work environments. As cases began to decline and vaccines became available, many companies opted for hybrid work, that is, a combination of in-person and remote work, for their employees.

Alex Swaton from the United States works remotely from Las Palmas de Gran Canaria, amid the coronavirus outbreak, in Gran Canaria, Spain, July 23, 2021. REUTERS/Borja Suarez

Alex Swaton from the United States works remotely from Las Palmas de Gran Canaria, amid the coronavirus outbreak, in Gran Canaria, Spain, July 23, 2021. REUTERS/Borja Suarez

Hybrid work environments require less capital from companies, as workers who go to the office only a few days a week require less physical space at work for individual tasks, working with co-workers, communicating with clients, etc.

A McKinsey survey of more than 25,000 respondents found that 58% of Americans have the opportunity to work remotely at least once a week, while 35% report having the option five days a week. And when given the opportunity to work flexibly, 87% take advantage of the opportunity.

“Certainly in office space consumption and new leases being signed, we see the hybrid workplace playing a big factor in reducing footprint and space needs. [new] expectations in the future,” said Nadji.

‘Overall footprint appears to be shrinking’

Companies like Yelp (YELP), PayPal (PYPL), Airbnb (ABNB), and Lyft (LYFT) have dramatically reduced their physical footprints in major cities or even switched to permanent work-from-home setups.

A 2021 Accenture study found that 63% of high-growth companies have adopted a “productivity anywhere” workforce model, meaning that hybrid, in-person, or fully remote work policies are all about the same. table. And several studies have found that the remote or hybrid work model has not had a negative effect on productivity.

“The overall footprint currently appears to be shrinking,” said Nadji. “I think if you look two to four years from now, when we have the next business cycle, with job growth and the lack of overbuilding, there’s very little overbuilding in commercial real estate, I think they’re going to offset each other as two factors. : One is the reduction in space due to the hybrid workspace and the other is the new demand entering the market.”

A man looks at an empty commercial real estate space in Santa Monica, California, U.S., June 16, 2022. REUTERS/Lucy Nicholson

A man looks at an empty commercial real estate space in Santa Monica, California, U.S., June 16, 2022. REUTERS/Lucy Nicholson

At the same time, however, Nadji highlighted how some of the fastest growing companies in the US are acquiring buildings or land to build future buildings. Tech companies, in particular, are looking for additional space due to the growing popularity of large data centers.

“The makeup of space utilization is changing to accommodate more team and collaboration and less about individual employee space,” Nadji said.

In addition, he said, within the commercial real estate industry, clients interested in development have intensified, “looking for opportunities to take … old office buildings and really old properties in all segments, and improve them, modernize them , improve them”. to the current type of configuration that the market seems to need as a very good investment instead of building new projects”.

Ethan is a writer for Yahoo Finance.

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