Hybrid business ‘biggest concern’ of inflation or stagnation for commercial real estate: expert

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

According to MSCI data, commercial real estate transactions fell 22% in the second quarter of last year. While both inflation and economic stagnation weigh on the minds of real estate investors and “create some hesitation”, Markus and Millisap CEO Hossam Nagy said this is “not really a long-term concern”.

“The biggest concern is this hybrid business environment,” he said on Yahoo Finance Live (video above). “We are seeing a lot of focus on amenities like fitness, childcare and even entertainment to motivate workers to want to be back at least three days a week, four days a week, whatever that is depending on the company. There is a lot of focus on how to create a reason why People like to congregate and go back to the office space.”

Amid this pandemic, many companies have had to shift their workplace settings away from strict office work environments to remote work environments. As cases began to decline and vaccines became readily available, many companies opted for hybrid work — which means a mixture of in-person and remote work — 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

Hybrid work environments require less capital than companies where workers who go to the office only a few days a week require less physical work space for individual tasks, working with fellow employees, communicating with clients, etc.

A McKinsey survey of more than 25,000 participants 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 the depreciation of office space and the new leases being signed, we see the mixed workplace play a huge role in reducing the footprint and space needs. [new] Nagy said.

“The overall footprint appears to be shrinking.”

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

A study by Accenture from 2021 found that 63% of high-growth companies have adopted a “productive anywhere” workforce model, meaning hybrid, in-person, or fully remote work policies are on the table. Several studies have found that the telecommuting or hybrid working model has not had a negative impact on productivity.

“It appears that the overall footprint at the moment is shrinking,” Nagy said. “I think if you look at two to four years, when we have the next economic cycle, with job growth coming in and a 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 to reduce The footprint is due to the mixed workspace, and the other is the new demand entering the market.”

A man looks at an empty retail space in Santa Monica, California, US, June 16, 2022. REUTERS/Lucy Nicholson

A man looks at an empty retail space in Santa Monica, California, US, June 16, 2022. REUTERS/Lucy Nicholson

At the same time, though, Nagy highlighted how some of the fastest growing companies in the United States are either buying 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 configuration of space usage is definitely changing to accommodate more team and collaboration and less in terms of individual employee space,” Nagy said.

Additionally, he said, in the commercial real estate sector, clients interested in development have advanced, “looking for opportunities to seize … old office buildings and old properties in fact in every sector, improving, upgrading, and bringing them into the current type of configuration that seems to be the market.” I need it as a really good investment rather than creating completely new projects.”

Ethan is a staff writer at Yahoo Finance.

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