How Are Companies Reacting to Market Price Drops?

Lessors and franchising operators who are facing the current economic crisis are unsure how to react because the market fluctuations are under an increasing influence of the recession. We are looking into how the real estate sector can prepare to resist the recession.

For years, the real estate sector was full of possibilities, for both lessors and franchising operators. Low interest rates, stable monthly revenues, a healthy capital growth and profit margins higher than those for residential real estate made for a fertile ground for insightful investors.

However, due to the recent events, factors of instability have appeared in global markets, and signs of a moderate recession are in the air. In order to maintain an advantage relative to the current trend and the profitability of their investments, lessors and franchising operators have to take a look at the needs, fears and the sensitive points of the business clients who use their spaces.

In what way will the leaders adapt when the growing markets and trends start going down? How will this influence their choices in the sense of real estate and working space? The better lessors and franchising operators understand this, the better it will be for their clients from the aspect of mitigating the risks and finding a way through the upcoming economic storm.

Commercial real estate sector: market state address

The economic problems arising from the global pandemic and the current conflict between Russia and Ukraine have incited an increase in interest rates and interventions from central banks worldwide, in order to provide help with the stabilization of global economies. The operating costs are growing, the possibilities for making profit are lowering, and meanwhile, both the users and the business executives are looking for ways of being more frugal.

In its real estate market outlook, the CBRE agency admits: “with high inflation and rising interest rates putting downward pressure on growth, […] the environment will be more challenging for property, with higher debt costs, and we expect, lower investment volumes.” Despite that, this real estate giant remains optimistic. “Still, it should be a short lived and a moderate recession, with the green shoots of recovery evident towards the end of the year.”

However, that doesn’t mean that lessors and franchise users should merely wait for the storm to pass. They should directly orient themselves to the changing needs of the clients who use their working spaces in order to secure the maintenance of a long-term trust and the sense of value that they get from the space and the brand of the franchise.

How will leaders react to the upcoming recession?

Many new leaders know only small interest rates, easy access to borrowing and great consumer confidence. The blow suffered in 2020, although undoubtedly challenging for the leaders, was also relatively short-lived. The most recent sustained market fall was the financial recession of 2007-2008.

For lessors and franchising operators, understanding the nuances of the change and the ways in which less experienced business leaders can react to the instability of the market are critical to the success of their real estate.

Leaders will instinctively try to protect their money flows. Less experienced managers could switch to the defensive survival mode, with sharp cuts and eschewing resources in order to reduce borrowing and overhead costs. However, we have learned from previous such policies that neither companies nor governments can move toward development by cutting the costs. A reasonable cutting of the costs should be harmonized with the equally reasonable investments. Luckily, the franchising operators and lessors who have adopted the hybrid model can help them do so.

How can clients persevere and advance in the conditions of an economic downfall?

A Harvard Business Review article from 2019 identifies four ways in which a company can persevere in the conditions of a recession and make a progress afterwards. These are as follows:

– reducing the number of resources to reduce debts;

– focusing on decentralized decision-making in order to make the organization more agile;

– seeking solutions for the reduction of workforce costs other than temporarily laying off employees;

– investing in technology to increase productivity and operating efficiency.

The company IWG is dedicated to helping its business clients implement the abovesaid in a way which prioritizes the people and the planet, while securing profitability at the same time. The interested parties in the field of business real estate realize benefits from this in numerous concrete ways:

– since clients are eschewing fixed rents and immovable assets in favor of more flexible arrangements, facility owners and franchise partners are in a perfect position to secure what they need, in the way which suits them;

– hybrid work enables companies to work in more agile and productive ways, and 58% of the employees in a survey by McKinsey report that hybrid work has increased their productivity. By increasing the productivity and profitability, longer and more intensive relations are incited between companies and interested parties in the field of real estate;

– hybrid working spaces can reduce workspace costs by up to 50%, due to which companies can save money without jeopardizing their competitive advantages;

– the interested parties realize the benefits from a networked location with an all-encompassing support. 80% of the FTSE500 companies operate with IWG at the moment, which facilitates the inclusion of these companies in your CRE strategy.

How does hybrid work affect resilience to the recession?

The benefits from hybrid work are realized by both lessors and franchising operators and clients.

The possibility of the access of companies to a flexible working space through the hybrid model could play a key role in forming resilience to the recession. Given that the conditions are flexible and oriented toward the needs of the clients, there is no need for companies to limit themselves by long or inflexible contracts.

Studies have shown a direct link between flexibility and the balance between the professional and the private life which occurs with hybrid work and employee productivity. This all further helps stimulate the economic growth.

With a flexible approach to business-class technology and the infrastructure for connecting, companies can use technology to incite productivity as per need, without disturbing the money flows.

Fore lessors and franchising partners, that signifies a sudden jump in the demand for flexible working spaces, which is why interested parties can more easily maintain the occupancy of their spaces and realize the kind of value that leads to long-term, profitable client relations.

As the world’s biggest provider of services in the field of flexible working spaces, IWG assists lessors, franchising partners and clients in finding more flexible, productive and cost-effective ways of work, with great dedication.

Contact us and learn how we can support you as soon as today.

International Workplace Group

International Workplace Group

IWG

recession

real estate market

real estate lessors

franchising operators

how to persevere in recession

hybrid work