Dr. Chuck Cowan, economics and statistical expert, discusses the post-pandemic effect of economic pressure on commercial real estate and the workplace. (Originally recorded May 2021)
Hello and welcome to the IMS Insights Podcast.
Today, we’re speaking with esteemed economist and statistical expert, Charles Cowan, PhD, about the post-pandemic effect of economic pressure on commercial real estate.
Dr. Cowan is the Chief Executive Officer and co-managing member for the national statistics, finance, and economics consultancy, Analytic Focus. With more than 40 years of experience, Dr. Cowan is an IMS Elite Expert, specializing in the development of financial research and its use in improving shareholder values, economic impact studies, and risk management.
It's so interesting. And kind of hearing you break down two major, sort of two large sets that we could consider companies, the winners and the losers. Not that necessarily in a pandemic, anybody's really a winner, but the firms that are doing pretty well, finding new ways to innovate, even developing new revenue streams throughout all this. And then those that are seeing declining revenues.
Is economic pressure forcing a broader spotlight right now on commercial real estate? I'd like to hear your thoughts on, even for companies that may be doing well, maybe they've been able to innovate, they've been able to adapt, or it's not been so disruptive that they've just been able to maintain and even grow amid pulling people into a remote environment, with maybe professional services workers. They could get people working from home. What does this mean for the brick-and-mortar office space? That cost consideration and everything else?
Well, leading into those types of changes in commercial spaces, I think about the stories that you hear about New York City and Florida with respect to an apartment. So, a lot of people moved out of New York City because of course they weren't working in New York City anymore. And so what that meant was that suddenly apartment costs dropped by a lot and people who used to pay very high dollar amounts were able to move out of the city and find something much cheaper and same was true for the people who remained in the city. They could move from where they were to someplace new and negotiate for a deal.
The other thing that I found interesting in that story was that some people negotiated a really good deal for them if they were paying at the higher end, but people at the low end who didn't really have the opportunity to move or couldn't move because they were working in the city, had no room for negotiation. So I think, again, there's a bifurcation in terms of the people that we're talking about.
So having said that, I fully expect the same thing to happen in commercial space, where especially at the high end, people will not need the space that they need now in high-end businesses and offices, the demand for that will decline. People will become less enamored with having people in the office like that. It won't be quite as necessary. Their expenses go down and it's not just the rental expense, there's maintenance fees, there are social gathering fees, there's administrative fees from people who are there supporting the staff who're working. It's a multiplier effect because the first thing that you save is the rent. But then on top of that, you save all of these other administrative and daily expenses that you don't have to worry about anymore.
Well, in the meantime, people are out working in other areas. So I could see some companies still trying to maintain kind of an office type setting, but they don't have to do it all together. So you get a hub and spokes type model, which is very popular in medicine, but I don't see it as much in the corporate world. It works really well in medicine because you need to have a place where people can come for treatment for different types of things, but you don't see that as much in the corporate world, but I think you're going to more so in the future. And that's something I haven't heard anybody talking about, hub and spoke type models where you have a need for space, but it's much less of a need than you had previously.
Now offsetting that, because as you've probably figured out by this time, I like to argue both sides. I will say that there's some downsides. One of the things I worry about the most is training. I like having people with me in the office, but that's because we have interesting discussions. There's a certain amount of training I use the whiteboard for to explain concepts to people. There's just solid interaction. I think you lose quite a bit of that by losing the commercial space. So as a business owner, on the one side, I might have the financial side arguing that I get to pay for less space so I'm saving money.
But my real question is that's an immediate saving, so it's present value versus future value. If I'm not able to train and develop and bring people up, or if I'm not able to work with people face-to-face and encourage retention, then you might have more churn in the marketplace and you certainly won't be able to develop people as rapidly unless you do something positive to kind of intervene and do a better job of bringing along the next generation of people who are going to be in your business.
Thank you to Dr. Charles Cowan for speaking with us today, and a special thanks to our listeners. At IMS, we’re trusted to deliver integrated trial services for the most influential global firms. It’s been our privilege to serve our clients on more than 20,000 cases and over 2,000 trials. Be sure to subscribe to our podcast and join us next time on the IMS Insights Podcast.