Address Change

Question: How is the evolution of “work from home” (WFH) and move towards more remote workdays impacting commercial and residential real estate? 

 Answer: Remote and/or hybrid work are two of the long-lasting legacies of the COVID-19 pandemic. Many companies made a more permanent move toward hybrid workstyles. This, along with more people working from home and remotely, has fundamentally changed where we live and how we work. 

Research by Stateline analyzed postal change-of-address forms and found that in the first year of the pandemic the migration out of city centers and metro areas into suburban and rural settings was record setting. For many workers, all that’s necessary is Internet access in order to ditch the daily commute as long as they have reliable Wi-Fi connections. 

Remote work shifted housing demand and dramatically influenced housing prices across the country. Analysis from the Economic Innovation Group between 2020 and 2022 show that US housing prices increased on average by 20% during that time period. Locations that were most attractive to remote workers included Southwest Florida for obvious reasons, increasing by greater amounts than many other areas. Housing affordability is at its worst in four decades with increasing rental demand placing more pressure on the workforce. 

Currently, higher interest rates are deteriorating affordability of home purchases and have cooled down the demand for housing. Construction is gradually declining in some areas in response to the reduced demand as reported by the Joint Center for Housing Studies of Harvard University. The initial Covid driven mass exodus from major cities may have been short lived, but the sudden expansion of remote work and the ongoing evolution to hybrid schedules will likely continue to influence future pricing of home prices contributing to inflation in select areas of the country. 

Offices and Commercial Space

As of the summer of 2023, half of the offices across the largest cities in the United States remain unoccupied. Kastle Systems analyzed data for trends finding that pre-pandemic, 95% of offices were occupied. Post-pandemic, Chicago and Los Angeles reported office occupancy rates of 55% and 51%. 

The Centre for Economic Policy Research surveys indicate that employers who are able to are navigating towards remote or hybrid workstyles are cutting office space. The primary reasons are to save money on empty space and find new ways of working that don’t revolve around centralized offices. 

Workers

The pandemic was the catalyst and technology opened the door for the explosion in remote working. Workplace solutions company Regis conducted research finding that 54% of workers have employers who allow remote work, and 70% of workers stated that flexible working arrangements are important to them. Almost 33% said they were more productive at home than in the office. Add in the lack of commute and more time to focus on work-life balance, and it’s understandable why the flexibility of remote work is so appealing. 

Data from Forbes Advisor indicates that one-third of workers prefer structured hybrid styles offering the best of both with flexibility and collaboration. Hybrid work may continue to lure workers out of the cities which will extend the economic shock to corporate and private real estate markets. Repurposing these properties will be the focus going forward. As commercial property owners begin to explore this concept, they are evaluating the costs which tend to be high to retrofit commercial real estate into residential. The reasons for this are primarily tied to water needs per unit and retrofitting space into living quarters. 

Remote or in person work preferences are an individual choice. Personally, I prefer being in the office, interacting with my colleagues and meeting with clients face-to-face. But my commute is less than two miles per day! Stay focused and plan accordingly.

Changes in tax laws or regulations may occur at any time and could substantially impact your situation. Raymond James financial advisors do not render advice on tax or legal matters. You should discuss any tax or legal matters with the appropriate professionals.

Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. The opinions expressed are those of the writer as of November 25, 2023, but not necessarily those of Raymond James & Associates, and subject to change at any time based on market conditions and other factors. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. allocation.