Over 50% of workers are 100% remote with another 20% sometimes working remotely due to the pandemic. Will this trend reverse this year with the rollout of the vaccine? How will this impact real estate in the short term and long term? What will be the primary driver of real estate going forward?
What is in the data? How prevalent is work from home move?
Over 50% of workers are 100% remote with another 20% sometimes working remotely. Two thirds of employees would prefer to work from home permanently. On the flip side another study shows that seventy five percent would prefer to be back in the office. Companies are similar with the huge spread in the perception of the office.
Is the Work From home phenom here to stay?
The work from home model is not going to be 100% like it is today for the vast majority of companies for four primary reasons.
- Pay cuts coming based on location: I’ve seen studies that 30-50% of companies plan to adjust pay based on employee location. For example, an employee in Denver would receive 20% less than an employee in New York due to cost-of-living adjustments. Will many employees migrate back to the office after a pay cut? I think there are a number that will.
- Less leverage on future pay: It is ironic that many employees feel they have more power since they can work from anywhere, unfortunately the reality is radically different. With a remote work force, employers quickly gain the upper hand as the available pool of candidates just became the whole country (or even the whole world). For example, companies could greatly reduce salaries by hiring people in Kansas versus San Diego. If the employees are virtual, companies will opt for the lower pay for the same quality.
- Advancement opportunities: Out of college I started working for a fortune 10 company at their primary facility in Oregon. We had plants scattered throughout the country, the employees at these plants had considerably less advancement opportunities as they weren’t in the know as to many of the opportunities and “out of sight, out of mind” so didn’t get considered for many of the advancement opportunities. For example, I got one of my jobs within the company as a result of a lunch with some friends where I met the head of another department who later hired me. It is hard to naturally replicate over zoom.
- Human psychology: Humans by nature want to be around other people. They need the “softer” parts of the office like the watercooler talks and lunch. True, these tasks make us less efficient immediately, but over the long term it is relationship building and creating trust, comradery, and corporate culture that is difficult replicate virtually. Many companies have come to the same conclusion.
Will the work from home trend reverse?
You will see some companies take radically different paths with some going almost 100% virtual and some going back to the office 100%. The majority of companies will likely take a middle ground and swing back towards the office, but not to exactly what the world looked like before the pandemic. There will likely be a blended model where people are in the office most of the time with one or two remote work days.
How does this impact real estate short term and long term?
What happens with the office will be the primary driver of real estate both now and into the future. Before the pandemic, the old adage of the three key drivers of real estate is “location, location, location”. Will this adage hold true in the future? It is important to separate the short-term impacts from the pandemic verse long term.
Short term work from home impact on real estate
- Flight to suburbia: the pandemic spurred an immediate flight to suburbia with larger houses and more open space in huge demand
- Flight out of expensive markets: Without an office, why would someone pay a huge rent premium? Many didn’t feel like it was worth it with rental rates plummeting in cities throughout the country.
- Likely already seen the effects on real estate prices: The short term impacts from the pandemic have already cycled through the real estate market which leads to the next question, where do we go from here?
Long term work from home impact on real estate
- Migration back to many cities but not all cities: there will be a reverse migration from the suburbs back into many of the cities. The migration will not be uniform. Less dense cities like Denver, Nashville, Atlanta, Salt Lake City, etc.. will be the big gainers from the next migration.
- Pay cuts will cause many to reconsider relocation plans: With many companies cutting worker pay based on location, look for many employees to make the decision to migrate closer back to the office so they can ensure the higher pay while coming into the office when required.
- Office will be back for the vast majority in some form: The office is not dead; it will be transformed from the pandemic and the majority of employees will be in the general vicinity of the office.
Summary
The Work from Home was a necessary phenomenon as a result of the first modern pandemic. There is no doubt that many habits developed during the pandemic will last for years (if not forever), but the work from home phenom in its current form will not last into perpetuity. There will be some sense of normalcy returning to the office later this year and as a result the old adage of “location, location, location” will continue to be the primary driver of real estate.
Additional reading/resources
- https://www.bloomberg.com/news/articles/2020-11-19/moved-during-covid-a-third-of-bosses-say-they-ll-cut-your-pay
- https://www.bloomberg.com/news/articles/2020-10-05/covid-effect-tech-workers-face-salary-cuts-if-they-relocate-to-cheaper-places
- https://news.gallup.com/poll/321800/covid-remote-work-update.aspx
- https://www.cnbc.com/2020/12/01/3-in-4-workers-want-to-return-to-an-office-in-the-future.html
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Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Glen has been published as an expert in hard money lending, real estate valuation, financing, and various other real estate topics in Bloomberg, Businessweek ,the Colorado Real Estate Journal, National Association of Realtors Magazine, The Real Deal real estate news, the CO Biz Magazine, The Denver Post, The Scotsman mortgage broker guide, Mortgage Professional America and various other national publications.
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