Commercial real estate has fallen, and hybrid work is a big reason for that, according to a real estate executive.
Commercial real estate transactions fell 22% in the second quarter from a year ago, according to MSCI data. And while inflation and an economic downturn are weighing heavily on the minds of real estate investors and “creating some hesitation,” Marcus and Millichap CEO Hessam Nadji said it’s “not really a long-term concern time limit”.
“The biggest concern is this hybrid work environment,” he told Yahoo Finance Live (video above). “We’re seeing a lot of focus on services 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 depending on the company . There’s a lot of focus on how to create a reason for people to want to come together and come back to the office space.”
In the midst of the pandemic, many companies were forced to change their workplace settings from strict office settings to remote work environments. As cases began to drop and vaccines became readily available, many companies opted for hybrid work, meaning a mix of face-to-face and remote work, for their employees.
Alex Swaton of the United States works remotely from Las Palmas in 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 into 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 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 the opportunity.
“Certainly in office consumption and new leases being signed, we see the hybrid workplace playing a big factor in reducing footprint and space needs. [new] expectations for the future,” said Nadji.
“Overall footprint appears to be shrinking”
Companies like Yelp ( YELP ), PayPal ( PYPL ), Airbnb ( ABNB ), and Lyft ( LYFT ) have experienced reduced their physical footprints in big cities or even moved to permanent work-from-home setups.
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A 2021 Accenture study Found that 63% of high-growth companies adopted a “productivity anywhere” workforce model, meaning hybrid, face-to-face or fully remote work policies are on the table. And several studies have done so Found that the remote or hybrid work model has not had a negative effect on productivity.
“The overall footprint currently appears to be shrinking,” Nadji said. “I think if you look at two to four years, when we have the next economic cycle, with job growth and a lack of overbuilding, there’s very little overbuilding in commercial real estate, I think they’ll each offset each other as two factors: one is the reduced footprint due to the hybrid workspace, and then the other is the new demand coming into the market.”
A man looks at an empty retail space of commercial real estate 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. Technology companies in particular are looking for additional space due to the growing popularity of large data centers.
“The composition of space utilization is certainly changing to accommodate more teaming and collaboration and less individual employee space,” Nadji said.
In addition, he said, within the commercial real estate sector, clients interested in development have increased, “looking for opportunities to take … older office buildings and older properties in all segments, and improve them, upgrade – them, carry them out. to the current type of setup that the market seems to need as a really good investment rather than building new projects.”
Ethan is a writer for Yahoo Finance.
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