One of the biggest changes the COVID-19 pandemic brought to our daily lives was the rise of remote work for office employees. For many people, work that could be done remotely, was done remotely. But where does remote work leave the office sector?
According to Gallup, 83% of all white collar workers worked remotely at the beginning of the pandemic at least part time, with a full 65% of that work force working from home on a full time basis.
While that trend has slowly moved downward as vaccination rates have climbed and weekly cases have dropped, questions still remain around the long-term trends of remote working and its impact on office properties.
Suburban vs Central Business District
In March 2022, President Biden called for people to “get back to work and fill our great downtowns again”. While most companies plan for a return to the office in the near term, there remains uncertainty around what that exactly looks like, and whether all employees will be required to return.
With rent/home prices and gas prices where they’re at, people aren’t all that willing to return to the office! A return to office means either paying more to live closer to work or paying more to commute to work.
But the housing market is so hot right now…
Houses out in the suburbs of popular cities like San Francisco are up by 30% from February 2020. Anything on the affordable side typically also comes with commutes well over 2 hours long (and with a national average of $4+/gallon, we don’t want to commute either)!
One strategy some companies seem to be taking is to move office spaces out into suburban areas where their employees live, rather than consolidating into downtown areas or typical central business districts. This is evidenced as prices for premium office buildings in downtown areas have fallen by 3.7% since the start of the pandemic, while suburban offices have risen by 14.8%. Vacancies too seem to reflect this, with CBD office vacancies hovering around 20.2%, while suburban office space is sitting slightly lower at 19%.
However, some market participants believe that a long-term trend towards a return to the office is inevitable, which will be followed by an increase in office valuations.
Once we get to the point that half of all people have returned to their offices, then 90% of the employees who care about their careers will probably want to return to their offices.
-Alejandro Romero, Associate Director of Investments at Accesso
The Generation Gap
In the push to get back into the office, one trend that clearly stands out is the desire to return to the office by generation. Young professionals actually have a greater desire to return to the office than their older counterparts. While this may seem counterintuitive to some, young professionals have the most to gain in their careers by a return to the office.
Trends by Market
Big cities like Chicago and NYC will remain major office centers for a while to come. Most suburban office growth is expected in secondary markets with a lower cost of living (Austin, Charlotte, Raleigh, Dallas, etc). These secondary markets (like our home city of Charlotte) also have a greater number of suburban dwellers, making the trend towards offices away from urban centers seem more likely.
One last interesting tidbit about this move away from office use in urban centers – cities with the highest income workers also happen to be the places with the highest percentage of remote workers. The average income for office workers in a top 10 work from home market is $100K!