Hybrid work is ‘more concerning’ than inflation or recession for commercial real estate: expert

Commercial real estate is down and hybrid working is a big reason for that, according to a real estate executive.

According to data from MSCI, commercial real estate transactions fell 22% in the second quarter compared to a year ago. And while inflation and economic recession weigh heavily on the minds of real estate investors and “create some hesitation”, Marcus and Millichap CEO Hessam Nadji said it was “not really a concern at all”. long term”.

“The biggest concern is this hybrid working environment,” he said on Yahoo Finance Live (video above). “We’re seeing a lot of focus on amenities like fitness, childcare and even entertainment to motivate workers to want to come back at least three days a week, four days a week, whatever it is according to the business. There’s a lot of focus on how to create a reason for people to want to congregate and come back to the office space.”

Amid the pandemic, many companies have been forced to move their office work environments strictly to remote work environments. As cases began to decline and vaccines became readily available, many companies shifted to hybrid working — that is, a mix of in-person and remote working — for their employees.

Alex Swaton of 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 of 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 come to the office only a few days a week require less physical space at work for individual tasks, working with colleagues, communicating with customers , etc.

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

“Certainly in office space consumption and new leases that are being signed, we are seeing the hybrid workplace playing a big role in reducing footprint and space requirements. [new] expectations for the future,” said Nadji.

“The overall footprint seems 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 moved to permanent work-from-home setups.

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

“The overall footprint currently seems to be shrinking,” Nadji said. “I think if you look two to four years out, when we have the next economic cycle, with job growth coming and a lack of overbuilding – there’s very little overbuilding going on in commercial real estate. – I think they’re going to offset each other as two factors: one being the reduced footprint thanks to the hybrid workspace, and the other being the new demand coming into the market.”

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

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

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

“The mix of space usage is sure to change to accommodate more team and collaboration and less individual employee space,” Nadji said.

Also, he said, in the commercial real estate sector, clients interested in development have intensified, “looking for opportunities to take…older office buildings and make them properties.” older ones in each segment, and improve them, upgrade them, elevate 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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