Economic Reset: A Silver Lining For The Built World & 3 Momentous AEC-Tech Investments

The post-pandemic return to office recovery hit a ceiling after occupancy topped 50% in January (crossing this milestone for the first time since the global lockdowns began 3 years ago). The ubiquitous remote & hybrid working environment that COVID forced on the corporate world has become entrenched in the "new normal" leaving commercial landlords heavily exposed to downside risk.

Remote & hybrid employment has become the status quo for the next generation of economic participants. With the US unemployment rate holding at an over 50-year low, and worker satisfaction near all-time highs, while employers look to cut overhead wherever they can (office space appearing to be one of the more obvious places to cut back), the long-term impact of the work-from-home movement is beginning to be seen by commercial real estate players.

The number of companies requiring their employees to be in the office full-time continues to drop, going from 49% to 42% in the past 3 months alone (according to Scoop Technologies).

Commercial building owners & operators are rushing to augment their spaces to incentivize tenants back into the office as commercial leases begin to come up for renewal. Despite these return-to-office efforts, commercial landlords are undoubtedly in for some pain as the built world resets for the future.

Commercial real estate giants like JLL (JLL), Cushman & Wakefield (CWK), and Newmark (NMRK), have seen their public market valuations cut to less than 50% of the peak they touched in early-2022 (before investors began understanding the long-term implications of the global lockdowns' economic shift), falling below pre-pandemic levels, as pessimistic short-sellers start piling on.

At the same time, US building & construction stocks climb back toward all-time highs as contractor backlogs tick higher.

Signs of renewed optimism are returning to the AEC space as longer-term secular tailwinds begin to shine through the near-term cloud of uncertainty.

As inflation cools and the rising interest rate environment concludes, investors & developers are beginning to look past near-term economic turbulence and toward the digitally-empowered future with growing optimism.

Later-stage built-world investors are finally coming out of the woodwork after months of hibernation with over $675M in capital being deployed across 13 deals in the past week. At the same time, Associated Builders and Contractors’ data showed that construction backlogs for April ticked up from the 7-month low it touched in March.