The shift to remote work has destroyed about $58 billion, or 33% in value of the commercial real estate market in New York City.
If you could work remotely, from anywhere in the world, where would you go?
The aftermath of the Covid-19 pandemic brings with it hybrid and remote work experiments, many of which are starting to appear more like a permanent possibility. PwC, Airbnb, Netflix and Meta are just few of the nation’s major employers who announced long-term virtual work plans.
The growing realization that the future of work will be dominated by hybrid and remote models has reshaped the commercial real estate industry overview.
Those wondering whether the increase in hybrid and remote work impacts the price of commercial real estate, and what shockwaves could be expected for investors. Here’s an overview.
A study titled “Work From Home and the Office Real Estate Apocalypse,” published earlier this year, highlights how the work-from-home boom was largely a bust for pricy corporate office space.
There will be additional losses, the authors warn, as the work culture shifts away from a five-day-a-week in-person model. The shift to remote work has destroyed about $58 billion, or 33% in value of the commercial real estate market in New York City. There are clear indications that this is happening at an unprecedented pace.
The loss of in-office workers could have a domino effect on the commercial real estate space. To get a detailed analysis of the commercial real estate industry in 2022, the researchers looked at a range of data, including office building valuations and occupancy rates, real estate investment trust (REIT) stock prices, and the market for commercial mortgage-backed securities.
According to U-Haul’s Growth Index data for 2021, California’s population has slightly declined since the Covid-19 pandemic. To blame are mass migration, coronavirus deaths, and fewer international arrivals. A similar trend was observed in the three most significant states in the Northeast-New York, Massachusetts, and Pennsylvania.
People who are looking to invest in commercial real estate are wary of mass migrations. This might provide a significant challenge to the real estate market in large cities like New York or Chicago, possibly leading to a decrease in prices and an increase in vacancies. Unfortunately, these domino effects are also hurting the retail and restaurant industries, which are also experiencing a rise in empty space as more workers opt to stay at home and don’t shop in malls.
These changes are predicted to result in continued suburban growth. Cities are no longer necessary for people to commute to for employment, or at least not as frequently. As a result, suburban housing demand is surging, which is helping to drive up suburban home prices overall.
It is also important to keep in mind that hybrid and remote work has had a significant impact on rent costs, but not in the way you might expect. One study found that areas with higher education, which are also more likely to have remote workers, experienced slower rent growth than other regions. Another negative side effect of being able to work virtually anywhere is that people are less willing to pay higher rent, which lowers the annual growth rate.
Commercial real estate prices undoubtedly are being impacted by remote work. However, the effect is inconsistent and frequently unpredictable, just like all Covid-19-related things.
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