Flexible work arrangements are reshaping real estate markets.

It’s hard to overstate how much remote work could reshape real estate markets. In a recent panel at Columbia University, one expert compared remote work during the pandemic to the Bolshevik Revolution. Another said that this is the first time employees haven’t had to physically live near their places of work.

Their concerns aren’t as hyperbolic as they sound. A recent McKinsey study estimated that demand for office and retail space could fall up to 38% by 2030. That’s a scary thought to many investors.

There are big disruptions in the residential real estate market too. Many buyers are coming to agents with a home office at the top of their wish list. But that’s not the only way remote work is reshaping the real estate market.

Homebuyers Are Expanding Their Search Location

Americans no longer need to live within commuting distance to work, and many are now geographically extending their home search to areas once considered too remote.

Moving becomes even more appealing when state governments in Vermont, Michigan, Nebraska, Connecticut, and others are offering financial incentives to lure remote workers to their cities. As a result, these states have seen an influx of new residents from New York, Chicago, and other expensive cities.

Out-of-town buying power has caused some formerly affordable markets to experience a steep increase in home values and the price per square foot. The five largest increases in the U.S. were in Cape Coral, Florida; Austin, Texas; Boise, Idaho; North Port, Florida; and Provo, Utah. In these areas, home values have increased between 66% and 72%.

Aside from Austin, none of those markets were considered “hot,” but now even vacant properties are flying off the market. With the real estate boom finally spreading from the most popular markets, investors may want to consider investing in the next Cape Coral instead of Los Angeles, Manhattan, and other current hot spots.

Home Offices Are a Must

Home offices are such a popular feature now that some agents have said they rival a home’s kitchen in importance. Buyers are looking for home offices that offer privacy, natural light, sophisticated finishes, and soundproofing. This has led many buyers, especially couples who each need a full-time work-from-home space, to look for larger homes. House flippers should take note. Space that might have previously been turned into a spare bedroom or a library could be repurposed as a home office.

Home Entertainment Spaces Are Much Less Popular

When everyone commuted to work, the home was a sanctuary. Now, after working at home all day, many Americans want to go out and socialize. Consequently, dedicated media rooms and theater spaces have become much less popular. In many cases, they’ve been converted to home offices.

Investors should take a critical look at properties that have dedicated home theaters or media rooms. If they can be easily converted for other uses, that’s great. If not, they may have to be marketed toward retirement-age buyers or be appealing enough overall to overcome lower interest from buyers.

Commercial Real Estate Is a Tale of Two Markets

In New York City, one analyst found that overall office rent fell around 40%, but that drop wasn’t distributed evenly across property classes. Class A properties still yielded good revenue and remained in high demand. Class B and C properties, which are older and offer fewer amenities, experienced a precipitous drop. They’ve been hit so hard that the analyst put their value at “close to zero or close to the value of the land.” Investors who are looking at anything lower than the top tier need to carefully calculate their margins.

Big Tech Is Shrinking Its Footprint

Much of the shrinkage in the office market can be traced back to tech companies. Meta and Google have given up a ton of office space. In New York alone, Meta has relinquished almost half a million square feet.

Abandoning office space is partly the result of economic worries. As companies anticipated a downturn, they cut their expenses by laying off employees and getting out of their leases. Yet the embrace of remote work also prompted companies to downsize their office space.

Tech companies led the work-from-home movement during the pandemic, with some of them abandoning in-person work completely. However, many companies have since reconsidered their stance after “revenue per employee” plummeted.

They also found that creative work and early-career training and knowledge transfer were severely hampered by the absence of in-person interaction. As companies such as Apple and X, formerly known as Twitter, move to bring employees back to the office, the commercial real estate sector could rebound.

A Demand for Flexibility

Americans are coming into the office less, but when they do, they work differently than they did before. After working from home alone, employees are looking for a collaborative work experience during which they can mingle and brainstorm. Successful commercial spaces should be built to accommodate those needs.

Modern office spaces will need to put much less emphasis on individual cubicles and more emphasis on communal coworking spaces. An open floor plan and more conference rooms are a good place to start. So is designing with multiuse flexibility in mind. As much as the workforce wants to work communally, there will be times when space will be needed for individualized work.

Flexibility goes beyond the physical space too. Many businesses will want flexible leases that can adapt to their evolving needs. In a market where commercial space is in less demand, smart owners will meet their tenants in the middle. Instead of 10- or 20-year commercial leases, leases may be as short as three to five years.

Americans Are Moving Less Often

Now that remote work has been normalized, moving for a new job is less common. The rate of employees moving for work hit an all-time low this year and is trending downward. High home values and sky-high interest rates have also locked many people in place, especially if they have an existing mortgage with an interest rate below 3%.

The upshot is that many sellers, when they do get around to finally moving, may want to save every dollar they can, through tougher negotiation tactics or using a discount broker.

Categories | Article | Market & Trends
  • Luke Babich

    Luke Babich is the Co-Founder of Clever Real Estate, a real estate education platform committed to helping home buyers, sellers and investors make smarter financial decisions. Luke is a licensed real estate agent in the State of Missouri and his research and insights have been featured on BiggerPockets, Inman, the LA Times, and more. Education: B.A. with Honors, Political Science — Stanford University

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