NEW YORK, NY – At the start of the New Year, only 32.8% of office employees were working in-person. Currently, 74% of U.S. companies either are using or plan to implement a permanent hybrid work model, after employees left urban centers for suburbs, and stopped commuting or traveling for work and business during the Covid pandemic. New research shows that the mass exodus from cities to suburbs and the introduction of working from home because of the Covid pandemic has reshaped housing markets, by temporarily increased suburban rents and house-prices relative to urban locations. It has major implications for the office markets as well.
The study, The Remote Work Revolution: Impact on Real Estate Values and the Urban Environment, shows that the transition to remote work or hybrid models has had a revolutionary impact on residential and commercial real estate in the U.S., and the research indicates that this will lead to even greater changes in almost every area of society. Columbia Business School Professor Stijn Van Nieuwerburgh found that the pandemic has changed the real estate investment landscape both for the short and long term. One of the pandemic’s longest-lasting impacts will be a transition to remote work from solely in-office work, though it will also have broader implications for investors in equity and debt markets, productivity and innovation, local public finances, and the climate.
“What we’re experiencing is like the Industrial Revolution 2.0,” said Earle W. Kazis and Benjamin Schore Professor of Real Estate at Columbia Business School Stijn Van Nieuwerburgh. “For all of human history, the place where you live and the place where you work were intricately tied to each other. Now we’ve severed that relationship, and it’s a revolution which will impact not only the value of real estate, but how we organize society.”
In the five-section study, Van Nieuwerburgh reviewed a wide range of data that compared the time period of the pandemic (2020-present) and pre-pandemic data (2017-2020). Also compared was data spanning the 20th and 21st centuries about the implications of working from home for real estate valuations, and the structure of cities. Van Nieuwerburgh reviewed global migration patterns, urbanization patterns, NYC net migration at the start of the pandemic (2020), national data on remote work policies, share of remote job postings from Indeed, rent and price gradients across top 30 metropolitan statistical areas from 2018-2020, new leases signed from 2015-2022 in New York City and nationally, among others. The data was used on migration, remote work, housing markets, and office markets while highlighting some new data sets that researchers have explored to track the effects of the pandemic. The study also reviews models both in finance and in urban economics, that look at the effect of remote work on real estate markets, the implications for the suburban office, retail real estate, equity and debt investors, local government finances, and for the environment. It concludes by outlining policy options for local government leaders.
- During Covid there was an enormous drop in office use, which seems to have lasted far beyond initial expectations and shows no sign of reversing. For example, there were about 250 million square feet of newly signed offices leases per year at the end of 2019, and less than 100 million square feet in signed office leases in the first half of 2022 nationwide.
- The drop in office use and the increase in work from home has decreased office values, and they will remain below 2019 levels over the next decade. Office values simulations considering work from home rates reveal that the entire NYC office stock fell in value by over 40% in 2020. Ten years after the transition to work from home, predictions show that office values in 2029 will remain at levels that are at an average of 39% below the valuation in 2019.
- While city office use and value dropped, house prices and rents in suburbs increased. The exodus from urban centers due to the Covid pandemic resulted in a large increase in house prices and rents in the suburbs, with the opposite occurring in the city centers.
As we enter yet another shift in remote work, with companies trying to get employees back into the office, we will continue to see shifts in the real estate market and attitudes toward work. Further data will be needed by all over time to see just how big of an impact the remote work revolution will have on society.
To learn more about the cutting-edge research being conducted at Columbia Business School, please visit business.columbia.edu.