How Do You Prepare for a Recession?
Waiting for the next economic downturn is a bit like waiting for a really boring meeting to wrap up: you’re pretty sure it’ll happen eventually but you don't know exactly when, and, in the meantime, everyone is a bit uncomfortable.
CFOs seem to think we’re due for one by year’s end, while economists seem to be a bit more optimistic. What everyone seems to agree on, however, is that recessions are more or less inevitable in a capitalist economy. So the question is what to do in the meantime?
Bisnow asked more than 25 global commercial real estate C-suite execs about what the next economic downturn will mean for commercial real estate — the results were mixed, but cautiously optimistic. Here are our key takeaways:
1. Demand for Coworking Will Decrease
Willy Walker, CEO of Walker & Dunlop, says that If current leasing rates, occupancy rates and debt levels hold steady, CRE will not be a contributing factor to the downturn, but that once a downturn begins, there will be several ramifications. Walker believes that the demand for coworking spaces will disappear, which makes sense as freelancers and startups would be likely to cut costs, and that WeWork leases will be essentially worthless to landlords.
2. Workplace Disruptors Will Benefit
RXR Realty CEO Scott Rechler notes that “the way that people live, work, play and stay has changed, but the real estate industry as a whole has been slow to adapt” to customer preferences. “When the economy next slows,” he says, “I am confident that the performance of properties that have adjusted to these trends will outperform those whose owners have rested on their laurels and were previously buoyed by a stronger economy.”
3. It's Important to Be Proactive About Shifting Expectations
Bei Capital CEO Collin Lau recommends that industry players adapt to the next downturn by “reducing exposure to very conventional, plain-vanilla office and retail and investing in specialty CRE that addresses changing lifestyle needs...” He adds that avoiding “operational initiatives that add value to the CRE is probably riskier than investing in operationally intensive assets.” This also speaks to the evolution of the ideal office space from four walls and some desks to a hub of productivity and inspiration that people want to come to.
4. Flexibility Has Value
Transwestern Commercial Services President Tom Lawyer is optimistic about what’s ahead, saying that U.S. companies are in good shape and that we’ll likely come out of the next downturn fairly quickly. He encourages well-thought-out investment and development strategies, and the exploration of “development, leasing, asset management and disposition strategies that ensure sustainability and performance during a more challenging environment.” Arguably, in the workspace sector, it’s not enough to just have the space anymore — flexible build-outs, top-tier tenants, and sustainable, modular design can all make a difference.
Never does the future of a company feel more uncertain than when an economic downturn is on the horizon, and capital-intensive, long-term real estate commitments quickly become a bone of contention. The alternatives to traditional leases that have resulted from the recent disruption of the CRE industry can only benefit companies by offering the flexibility to withstand the tough times. If you’d like to learn more about your options, check out knotel.com/products.