How Inflation Impacts Corporate Real Estate

With prices on the rise, more businesses and consumers are confronting the possibility that record inflation rates will persist well into 2022, if not beyond.

The COVID-19 pandemic led us into a period of global economic uncertainty, shifting the way office space is being used, and increasing workplace flexibility. While remote work trends are still rising, companies are looking at ways in which they can entice workers back to the workplace through attractive and collaborative environments.  

However, inflation rates are at their highest point since the early 1980s, which has pushed companies to pursue new cost-efficient methods to achieve the new normal in a volatile market. Corporations are cutting back on their spending, reassessing space utilization, and making other necessary adjustments to their corporate real estate. As rents and values rise, 45% of businesses are planning real estate reductions over the next year.

Generally, sustained inflation requires a continuous rise in broad real estate and other general operational costs. In addition, as labor comprises as much as 70% of total US business costs, sustained consumer price inflation typically requires sustained wage inflation.  

Office demand is still low while sustained inflation continues to rise. This will have an impact on the cost of office services leading to a higher cost of underutilized real estate. It will also affect employees, as wages increase to match the sudden and sustained inflation. This is further fueled by the rising interest rates, as times of historically low-interest rates are gone, and the risk posed to economic growth through the overall increase in the cost of capital and market volatility.  

Real Estate Leaders and Facilities Managers should prepare for a range of scenarios, including an extended impact on operational costs like maintenance, utilities, facilities management, and insurance. When the cost to maintain a property goes up, the overall cash flow will decline. This will pose the question, “where do we cut real estate?” 

Operational benchmarking, internal workplace optimization, and other key solutions will be vital to surviving and thriving in 2022 and beyond. 

Interested in seeing how operational benchmarking can help your organization? Schedule a free 15-minute consultation call and learn how RefineRE’s platform can optimize your business’s performance while helping you make cost-saving decisions.