We Built This Suburb on Work from Home
A mixture of natural circumstances and humanity’s drive for technological development has potentially positioned a segment of the American Land Title and Settlement community and the business community as a whole at the cusp of a large paradigm shift. The widespread and somewhat forced adaptation and eventual acceptance of a pervasive remote workforce, largely brought about by the Covid-19 pandemic, has begun reshaping the real estate and housing landscape coast-to-coast. This phenomenon has started to call into question long held residential and commercial real estate value assumptions based upon the potential for mass worker migration out of city centers and into suburbs and rural areas. It has also forced many organizations to take another look at their recruiting and workforce policies to remain competitive.
Significant Groups of People are Shifting
The potential need for office workers to occasionally swing by an office may restrict many outright relocations to different markets. This may be one reason that the current mass migration taking place appears to be far more localized than some may realize. According to a recent Bloomberg Article, 84% of relocations occur within the same metro area. This local shuffle, initiated by the Covid-19 lockdown, often sees people upgrading to bigger houses and moving out of city centers to the suburbs and satellite communities.
As many companies adjust to occasional, localized remote work, others are increasingly opening up to a nearly comprehensive untethered workforce, free to move about the country wherever they like… provided there is good internet service.
One obvious benefit to this recent migratory pattern is that office workers are now more easily apt to capitalize on cost of living disparities from market to market. Essentially, some office workers are still earning ‘big city pay’ while paying ‘small town expenses’, along with reduced commuting and parking costs. This can be alluring to many.
These migratory shuffles are not merely conjecture. They are actually happening and are in fact putting immense pressure on housing inventory. It appears that many people are choosing to move out of multi-unit inner-city accommodations and buying larger, single-family homes, often in more rural areas. This, compounded with numerous supply chain hiccups caused by pandemic related shutdowns, has caused demand to far outpace supply and housing prices to skyrocket. Across the U.S., residential real-estate prices were up 17% between March 2020 and March 2021 according to entrepreneur.com.
Further, smaller rural areas are seeing a large influx of well-paid newcomers buying up affordable housing and renting at higher rates, often outpricing incumbent residents. Issues arise as affordable housing disappears and many workers at the lower end of the economy struggle to find residences within commutable distance to where they physically work. But where do these individuals work? Often, they buoy the amazing bars, restaurants, and shops frequented by the new well-heeled transplants pouring into town. These issues are natural growing pains that come along with change. The market, occasionally with some help from the government, will eventually sort things out, but as is sometimes the case, those of lesser means may bear the brunt of the pain in this regard.
Lets’ Talk Commercial!
Over on the Commercial side of the Real Estate world, conditions are also being affected substantially by the recent market chaos. As the residential side sees workers shuffling and spreading out from the city centers, the commercial side finds question marks around what to do with millions of square feet of commercial office space. Historically, expensive rents are paid to occupy large, beautiful office locations in the heart of city centers. Thousands and thousands of employees lived around those centers and commuted in each morning and out each night. As they traveled into the city centers, they spread their hard earned money around at coffee shops, newspaper stands, convenience stores, restaurants, bars, and dozens of other businesses that previously subsisted just fine. With the “new deal” regarding remote work, fewer employees are making the trek into the office and thus, not spending their cash at said establishments.
For example, let’s look at New York City, undoubtedly one of Americas greatest cities. At over 18%, NYC is currently seeing its highest commercial vacancy rates since the upheaval of the 1970’s. A growing list of large NYC stalwart companies are again pushing back their reopening dates causing many to wonder if many will reopen in a reduced capacity or at all. These are household names including Goldman Sachs, Amazon, Apple, Google, Starbucks, Uber, and Lyft just to name of few. On top of all this, there is roughly 14 million square feet of new commercial office space under construction throughout the boroughs, which could further saturate the market. Also complicating matters, commercial real estate’s high property value is the backbone of the city’s tax base, so fluctuations in that value can have huge implications on the budget. Lifestyle conveniences aside, if workers do not actually need to pay the record high rents now that they can work remotely, will they stick around long term? Likewise, with corporations not necessarily needing huge luxurious showcase offices downtown, will they continue paying astronomically high rents? Time will tell and New York City stands as an example of similar situations experienced to different degrees around the country.
If a historically lower amount of large apartment buildings and office parks around the country are not as needed as they once were, for what will they actually be used Additional housing? Retail or entertainment space? How will this change affect property value?
Without a question, the market may not have yet fully arrived at many of these answers and in the meantime, there will likely be some serious transitional woes. This is hardly the first shift in human migration that has occurred if this is even proves to be a major shift at all. We are still in the throes of a global pandemic, as the Delta Variant reminds us, how the dice will land by the end is still uncertain.
What is the good news, you ask? One answer to that question is that with any major change comes opportunity. Long-lasting, well-established norms have allowed for business, industries, and individuals to intrench themselves and force out smaller players or potential newcomers. Major transitions often present an opportunity to start over as new rules and new standards are set and turmoil potentially resets the board. So maybe ask yourself, what is your company doing to adapt to these potential changes and what can you do to adjust your recruiting and remote workforce policies to remain competitive in today’s world?