Work From Home Real Estate Impacts

Updated: Feb 7

Most people know that real estate in major cities is incredibly expensive for both commercial and residential properties. After living in the DC area for several years and commuting to work via bus or metro, I learned very quickly how expensive a decent, centrally located apartment was. I also learned how rare (nearly impossible) it was to find a place that checked all the boxes. Central air, laundry in unit, parking included, walkable to public transit, safe, clean, within budget – the list goes on. So, when company headquarters in major metropolitan areas allow work from home options for their employees, what does that mean for real estate?

When we look at commercial real estate, there are many expenses that come into play. Capital expenditures, build-outs, operating expenses, lease commitments, etc. so when a company decides to shift from in office to work from home, those commitments don’t just disappear overnight. Lease commitments can often extend 10-15 years and termination is usually quite costly. However, the long-term savings is substantial as real estate is often one of the highest expenses for a company. Some companies will opt for a hybrid work from home environment which will allow employees more flexibility on when they go into the office but that may mean hanging on to real estate that is underutilized. This presents its own set of challenges for employers when it comes to space planning and may require a reduction in square footage and lease renegotiations. Capital improvements that were already implemented to improve employee experiences before the pandemic (i.e. open floorplan construction, cafeteria offerings, EV charging station construction) may be gathering dust and considered a sunk cost. In these major metropolitan areas, there are also second and third order effects like retail and restaurant owners who rely on city foot traffic from employees and the landlords that own those spaces as well.

Major cities like DC, San Francisco, Los Angeles, and New York have all experienced a mass exodus due to work from home options. This has boosted the number of new suburban and rural residents in surrounding areas which may be leveling the real estate playing field. In addition to low interest rate offerings, this shift in residential demand has resulted in the surge of housing costs. Many city dwellers are selling their city condos or breaking leases and taking their high salaries to rural areas to buy up large properties that can accommodate home office needs.

With densely populated cities losing workers to lower cost of living in the suburbs, will desperate landlords and vacancies allow for new residents and companies to move in? New York City experienced a record breaking population decline due to the pandemic but has recently begun to see a slow comeback in new residents. As the months go on and employers solidify their return-to-work plans, it will be interesting to see if other major cities follow this pattern and when the inconsistencies in real estate and residential populations will level out.

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