Hughes Marino Exec Explains How WFH, Hybrid Work Models Have Impacted Commercial Leasing

Hughes Marino is a tenant representation company keeping a watchful eye on the future of office space. While the COVID-19 pandemic presented unprecedented challenges in most industries, the San Diego-based operation’s co-founder and Senior Executive Vice President David Marino says inconsistencies in how the workforce is returning to the office have produced some regions with excess space. Many subleases are being put on the market as corporations try to recoup what they can from office rentals they no longer need as many are still working from home. 

“This inventory is coming on the market at an accelerated rate now in 2022, as more and more companies attempt to rationalize their real estate footprint needs,” says Marino, a 30-year industry veteran who has 2,000 transactions to his credit. He co-founded the Hughes Marino firm in 2011. 

“Some people really want to come back for mentoring, communication, culture, or because they don’t have appropriate home office environments, yet others are never coming back to the office.”

Marino adds that hybrid office options have become another popular choice with 20% to 50% of employees favoring a return to the office for just a few days a week — or month.

“Companies just don’t need as much space as they used to, given the broad change to remote working and hybrid models,” Marino explains. 

Marino mentions this singular phenomenon has pushed many corporations into a unique situation. 

The Financial Post reports that working from home is the new normal and employees haven’t returned to pre-COVID commuting patterns

“We have definitely seen a tipping point toward a deeper and more permanent integration of remote and hybrid work,” FlexJobs CEO Sara Sutton told the Financial Post. 

And it’s not just happening in America. WFH is happening all over the world as the pandemic continues to ebb and flow thanks to emerging COVID variants. 

The Freespace index, which tracks office usage in big corporations internationally, shows that occupancy is about half its 2019 levels for both work space stations and meeting rooms.

“Tenants just want to cut the burn rate,” explained Marino. “They just want to get some kind of economic recovery. If they get 50 cents on the dollar, they get 70 cents on the dollar, well, that’s better than losing the dollar.”

Marino says this arrangement benefits businesses but steers power away from landlords. He adds that the commercial real estate industry remains totally unregulated as landlords swap information and ensure everyone involved stays on the same page.

“Landlords talk and cooperate, because they can and it’s in their mutual interest,” Marino says. “No one on the ownership side wants to see a price war, as it drags them all down.” 

Commercial Leasing Still Facing Challenges

Despite efforts to encourage tenants into a renter’s market, it didn’t quite pan out as planned. 

Managed security company Kastle Systems combed through secure data from thousands of offices in 10 major cities, finding an average occupancy rate of 37.8% in November 2022, while office sublease inventory has increased from 2020 in every major metro area across the nation. Prices still haven’t dropped in most U.S. office markets and it’s created a corporate conundrum with companies seeking office space, landlords aiming to rent space, and brokerage brands — which are actually some of the landlords themselves — managing the deals. 

While Marino acknowledges there are no shortcuts, he says Hughes Marino’s tenant-focused tactics have helped tenants avoid price-fixing between competing landlords. 

Brokers’ Roles in Price Hikes

As landlords raise prices, Marino explains that most brokers don’t enter a deal intending to collaborate with a landlord to squeeze a tenant. But the main issue arises when there’s a chance to earn hundreds of thousands of dollars extra when a broker places a client in one of their own listings, getting both sides of the fee. “You’re always going to give your landlord client a last look,” he says. 

The final result typically creates longer-term leases and higher tenant costs, which is a better deal for the broker and landlord — but not the tenant.

 Hughes Marino’s Competitive Edge 

With nine offices in five states, Hughes Marino has solidified its spot as a commercial leasing expert and it’s loaded the roster with premium talent in each of these cities.

“People see what we’re doing,” Marino says. “Competitors are nervous and anxious about the moves we’re making.” 

As Hughes Marino continues to expand, he says traditional brokerages aren’t thrilled about it because his firm is shining a spotlight on landlord/broker relationships and holding parties involved to be more transparent and accountable. 

“It’s something that our competition doesn’t really want to hear about,” he says. “Frankly, if you are competing for tenant business, it is a competitive advantage to represent tenants and it has become a niche specialty. If you need brain surgery, you don’t go to a general practitioner.”

Marino shares that they are also approaching each deal with intention — and surprisingly, it’s been a positive experience for landlords too. 

“We aren’t trying to give the tenant a particular outcome, but rather the solution that is best for the tenant,” he says. “We also do a lot of lease renewals, and we have no financial incentive to move a tenant unless the current landlord cannot accommodate the requirement or be competitive.” 

He says corporate America still has a lot to learn when it comes to leasing and that while landlords tend to be organized, there are no actual trade groups looking out for tenants in the industry, hence the imbalance of power.

“The landlords and the brokerage community have all the power,” Marino says. “That is why we are building what we are building. We think we can be the changemaker in our industry. We think we can build something that is enduring, that is independent, and that matters. That will always be here to serve the business owners, management team, and board of directors that make up the tenants.”

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