Hybrid work “bigger problem” than inflation or recession in the commercial real estate market: expert

According to one of the managing directors of commercial real estate, it is failing, and hybrid work is an important reason for it.

According to MSCI data, transactions in the commercial real estate market fell by 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 CEO Millichap Hessam Nadji said, “this is not a long-term problem.”

“It’s a hybrid work environment that’s a bigger problem,” he told Yahoo Finance Live (video above). “We see a lot of emphasis on amenities such as fitness, babysitting and even entertainment to motivate employees to return at least three days a week, four days a week, whatever it is depending on the company. a lot of attention is paid to how to create a reason why people want to flock and go back to the office space. “

During the pandemic, many companies were forced to switch from office to remote workplace settings. As cases began to decline and vaccines became readily available, many companies opted for hybrid work – which means a combination of both personal and remote work – for their employees.

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

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

Hybrid work environments require less capital from companies because employees who come to the office just a few days a week require less physical space at work to complete individual tasks, work with colleagues, communicate 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, and 35% say they have the opportunity to work remotely five days a week. And when given the opportunity to work flexibly, 87% take advantage of it.

“Certainly in the case of office space consumption and new lease contracts signed, we can see that the hybrid workplace plays a large role in reducing the occupied space and space needs. [new] expectations for the future, ”said Nadji.

“Total carbon footprint seems to be diminishing”

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

A 2021 Accenture study found that 63% of fast-growing companies have adopted an “anywhere” workforce model, meaning hybrid, personal or total remote work. Several studies showed that remote or hybrid work models had no negative impact on productivity.

“The total carbon footprint now seems to be diminishing,” said Nadji. “I think if you look at two to four years when the next economic cycle comes, with job growth to come and no redevelopment – there is very little redevelopment in commercial real estate – I think they will compensate for every other as two factors: one is reduction in footprint thanks to the hybrid workspace, and the other is new market demand ”.

A man looks at an empty retail space of a commercial property in Santa Monica, California, USA, June 16, 2022. REUTERS / Lucy Nicholson

A man looks at an empty retail space of a commercial property in Santa Monica, California, USA, June 16, 2022. REUTERS / Lucy Nicholson

At the same time, Nadji stressed that some of the fastest growing companies in the US are either purchasing buildings or land for future buildings. Technology companies in particular are looking for additional space due to the growing popularity of large data centers.

“The composition of the space utilization is definitely changing to accommodate more team and collaboration and less for individual employees’ space,” Nadji said.

In addition, he said, in the commercial real estate industry, our clients interested in development “are looking for the possibility of taking over … older office buildings and actually older properties in every segment and upgrading them, upgrading, bringing them up to the current configuration, which the market seems to need as a really good investment instead of building completely new ones. projects. “

Ethan is a writer for Yahoo Finance.

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