Commercial real estate is down and hybrid working is a big reason why, according to one real estate manager.
According to MSCI data, commercial real estate transactions fell 22% in the second quarter from a year ago. And while inflation and an economic recession are weighing heavily on real estate investors’ minds and “causing some hesitation,” Marcus and Millichap CEO Hessam Nadji said it’s “not much of a long-term concern.”
“The biggest concern is this hybrid work environment,” he said on Yahoo Finance Live (video above). “We see a lot of focus on amenities like fitness, childcare and even entertainment to motivate employees to want to come back at least three days a week, four days a week, whatever it is, depending on the company. a reason for people to come together and come back to the office space.”
Amid the pandemic, many companies were forced to shift their workplace environments from strictly in-office to remote work environments. As cases began to decline and vaccines became readily available, many companies opted for hybrid work—meaning a mix of both in-person and remote work—for their employees.
Hybrid work environments require less capital from companies as employees who only go to the office a few days a week require less physical space at work for individual tasks, working with colleagues, communicating with clients, etc.
A McKinsey survey of more than 25,000 respondents found that 58% of Americans have the option 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% seize that opportunity.
“Certainly in the office space consumption and the new leases that are signed, we see the hybrid workplace playing a major factor in the reduction of the footprint and the space requirement. [new] expectations for the future,” said Nadji.
‘The total footprint seems to be getting smaller’
Companies such as Yelp (YELP), PayPal (PYPL), Airbnb (ABNB), and Lyft (LYFT) have drastically reduced their physical footprint in major cities or even switched to permanent work-from-home setups.
A 2021 Accenture survey found that 63% of high-growth companies adopted a “productivity everywhere” workforce model, meaning hybrid, personal, or full remote work policies are all on the table. And several studies have shown that the remote or hybrid model has had no negative impact on productivity.
“The overall footprint appears to be shrinking at the moment,” Nadji said. “I think if you look two to four years ahead, when we have the next economic cycle, with job growth and a lack of overbuild – there’s very little overbuild going on in commercial real estate – I think they’ll each compensate for the other. as two factors: one is the reduction in footprint due to hybrid workspace, and the other is the new demand coming to the market.”
At the same time, however, Nadji highlighted how some of the fastest growing companies in the US are either acquiring buildings or land to build future buildings. Tech companies in particular are looking for extra space due to the growing popularity of large data centers.
“The composition of space usage is definitely changing to make way for more team and collaboration and less for individual employee space,” Nadji said.
In addition, he said, within the commercial real estate sector, clients interested in development have stepped up, “looking for opportunities to…take older office buildings and basically older properties in every segment and improve them, upgrade them, retrieve them.” to the current kind of configuration that the market seems to need as a really good investment rather than building brand new projects.”
Ethan is a writer for Yahoo Finance.
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