How Remote Work Has Affected Real Estate Values
The internet and all of the connectivity it offers has allowed for the meteoric rise in telework and telecommuting. Mix in a catalyst like global catastrophe, and you’ve got yourself a shift in cultural and societal norms the world over — this trend became mainstream during the COVID-19 pandemic, when working from home became a requirement for many people.
In fact, 25% of all professional jobs were remote by the end of 2022, with that percentage increasing throughout 2023. This trend doesn’t seem to be going anywhere either, even though the pandemic has been over for a while now, leading to industry-wide shifts and consequences for nearly everybody. The shift to remote work is having an impact on various aspects of the market, including real estate.
Real estate can be a worthwhile investment in an uncertain market, providing passive income and protection against inflation. However, it’s important to understand that remote work has affected real estate values and the market in significant ways — for better and worse.
Residential Real Estate
The increased popularity of remote work has impacted the real estate market in several notable ways.
Primarily, potential buyers are moving geographically. This widespread city-to-suburb shift has been made possible by the work-from-home movement. People can keep their dream job without paying the high cost of living in major cities.
Another important impact that remote work has had on the residential real estate market is the priorities held by potential buyers. When working from home, home office space and outdoor access become all the more important.
Shift Toward the Suburbs
During the pandemic, the populations of the largest cities in the U.S. changed considerably. In fact, the 15 largest cities in the United States all had a smaller population after the first year of the pandemic than they did before the pandemic started.
This population shift was caused by a widespread move to the suburbs. Many workers, with the rise of remote work, no longer needed to commute to their office in the city. This led to many people moving further away from highly populated areas. For example, the smaller towns and suburbs outside of Austin, Texas saw a growth of roughly 10% in the first year of the pandemic.
Suburbs and smaller cities provide a high standard of living with a much lower price tag than many major cities. Many professionals who work from home are looking for towns and suburbs where they can grow their careers remotely and raise their families near good schools and hospitals.
Search for Home Office Space
Remote work has affected where people are buying homes, but it has also affected what homes people want to buy.
Potential home buyers are interested in homes that have dedicated home office space where they can work. Home office space can be in the form of an extra bedroom, basement, or other additional space. A decent office space allows remote workers to better maintain their work-life balance, even when working from home.
Beyond office space, potential home buyers are also looking for outdoor spaces such as patios and porches, as well as neighborhoods that provide access to local restaurants and entertainment. The same sources of respite from work are still necessary — people still want their Starbucks before work, or the ability to get in a workout during lunch — but now people need to ensure these former out-of-office amenities are closer to home.
Commercial Real Estate
The shift to remote work has had an impact on the commercial real estate market, and this impact is seen strongly in larger cities. Cities such as Manhattan and San Francisco are seeing changes in population, rent prices, and property values as more residents move to the outlying suburbs
Reduced Office Rents in Major Markets
Between 2019 and 2022, some of the major commercial real estate markets in the United States saw a substantial decline. For example, the cost of rent for commercial office space in San Francisco dropped by 30.8%, and the office rent in Manhattan dropped by 13.6%.
As telework becomes more popular, the demand for physical office spaces has declined in many cities across the U.S., and many property managers are lowering the cost of rent in a bid to attract tenants. This trend was not seen in cities such as Raleigh, North Carolina, however, in the same 2019 to 2022 time period.
This is because cities like Raleigh host a higher number of medical research companies. Industries such as medical research can’t thrive in a completely remote environment, so rent prices for office spaces in these locales increased steadily throughout the pandemic.
Lower Property Values
When the rent potential of commercial buildings dropped in many cities, so did the property value. According to Forbes, the value of office buildings in New York City dropped by 40% in 2020.
Demand for houses in the suburbs, naturally, causes the prices for those houses to rise. The opposite is happening, generally, in major metropolitan areas. Commercial property values dropped during the pandemic — however, this may reverse in the coming years, depending on the number of companies that continue to operate remotely in the years after the pandemic.
How Can Businesses Adapt?
A real estate investor looking to adapt to these market-wide changes should consider:
- Modifying your investment portfolio to include more residential property.
- Working with a trusted sponsor who has a history of successful investments.
- Learning as much as you can about the real estate market and how to make the most of your investments.
- Saving on the cost of rental properties by writing off depreciation on your taxes.
Taking these actions can help you and your business to make money as the real estate market continues to change in response to remote work trends.
The world has changed since the pandemic. Everything from the average workday to property values has shifted. By learning about these changes, you can adapt and continue to make the most of your time, money, and investments.