We’ve all heard the old adage “location, location, location,” and many consider it the most important piece of criteria that applies to real estate investment. Whether you’re buying a new primary residence, a rental property out of state, or a large apartment complex, the location of that property is a variable that should carry a lot of weight in your decision to move forward with the investment.
Well, fast-forward to 2023, and this principle is being challenged in a big way due to one very dramatic shift in American culture: the trend of remote work.
How Has the Work Landscape Changed?
Prior to the pandemic, we crammed thousands of employees into cubicles on corporate campuses, which required those employees who worked at that campus to live near the office.
That corporate environment has changed in a big way. Even with the pandemic years behind us, many businesses are allowing their employees to still work remotely. According to Forbes, as of 2023, 12.7% of full-time employees are working from home, and 28.2% are working a hybrid model.
There have been challenges for employers around this shift, particularly around ensuring that their employees who work from home are equipped with all the tools necessary to do their jobs. Ideally, if you have an ergonomic chair, two monitors, a keyboard, a mouse, and a headset in the office, you should be offered those same amenities at home.
Additionally, performance metrics such as production and quality need to be monitored closely, as a remote working employee is exposed to countless distractions throughout the day, which, in theory, could negatively impact their job performance.
Despite these challenges, employers are doing what they can to offer remote work when it is feasible for their business, and about a third of U.S. workers who can work from home now do so all the time.
Nowadays, with 16% of companies able to operate fully remotely, employees who work for one of these corporations can take advantage of this opportunity—no longer bound to live in a submarket within a 20-mile radius of their office.
This has caused many workers to rethink their living arrangements because as long as they have a Wi-Fi connection and a comfortable chair, they can technically work from anywhere in the world.
From a practical standpoint, working from home creates a better employee experience overall. Remote workers spend less time in their cars commuting every day and spend less money on gas every week. This frees up time for extracurricular activities, hobbies, and time with family.
The Home Office
A few years ago, before the COVID-19 pandemic, home offices were just a bonus feature in a real estate listing. Maybe there was an extra bedroom that the staging company didn’t know what to do with, so they threw a desk in there and called it an office. Or maybe the listing agent needed some creative buzzwords for their listing, so they advertised the home as having an office.
The point is, home offices have existed for a while, but in reality, they weren’t used by many people other than the work-from-home entrepreneur.
In 2023, the home office has become a staple in most real estate listings. Many house flippers and real estate developers are actually adding home offices as a feature in their homes, and these offices are being outfitted with built-in desks, bookshelves, and custom lighting.
Adding an office to your home might not technically increase your property value from an appraisal standpoint, but it will certainly make your home more desirable to prospective buyers.
The Real Estate Market Impact
Remote work has had an impact on almost every real estate sector, but the largest impacts are seen in both suburban neighborhoods and commercial real estate.
In the case of suburban neighborhoods, remote work has given employees the freedom to live in areas that are quieter and more affordable. This has increased suburban rents and house prices relative to urban locations.
This is a valuable insight for real estate investors, but it is possible that these increases in rents and prices are temporary. While it might be exciting and trendy to live in a suburban neighborhood today, there has always been a draw to living closer to the city center (in most major markets). Out of convenience and quality of life, that draw to live in the city will always remain, making urban market investments more likely to have higher appreciation rates compared to investments in suburban markets.
Commercial real estate
Commercial real estate is seeing the most drastic impacts right now, particularly in the office sector. As of the first quarter of 2023, office vacancy rates hovered around 16%, compared to an 11% vacancy rate prior to the pandemic.
There is simply too much office inventory available for rent and not enough demand due to the new work-from-home posture that many companies have adopted.
Cities like Los Angeles are impacted with even higher vacancies, which reached a historic high of 22.5% in the first quarter, representing an increase from 20.3% a year ago.
With large employers realizing that there is no need to occupy millions of square feet of office space, they can increase their cash flow by eliminating that massive rent expense while also improving employee satisfaction. This has created a painful scenario for investors of large office buildings around the world.
2024 and Beyond
As people continue to embrace the freedom to work from anywhere they want, suburban real estate markets may continue to boom, home offices will become a nonnegotiable option in residential properties, and owners of large office buildings will be faced with challenging decisions on what to do with these large, partially vacant assets.
This shift in the market may present real estate investment opportunities for short-term rental investors who target trendy markets that would be considered desirable for the digital nomads who have surfaced as a result of this work-from-home freedom.
Additional opportunities also lie ahead for more sophisticated investors who have the experience and capital to take on the challenge of developing office properties into more desirable asset classes, like apartments.
How do you plan to capitalize on the work-from-home movement in your real estate investing journey?
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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.