Coronavirus, Remote Work, and the Future of CRE

During the Great Recession, unemployment was particularly bad because many companies permanently reduced headcounts in some roles. Technology had made certain tasks (like legal research at law firms) much more efficient, but it was only under duress that companies finally took full advantage of the new reality.

Business doesn’t necessarily react to technology in a linear way. It’s easy to overlook dead weight when the numbers are all trending in the right direction, but the pressure of a downturn tends to clarify things. So, what will change in the next recession?

My pick for an upcoming business disrupter is remote work. Only in the past cycle has this really become feasible for the average white collar employee. Many of the best remote work tools didn’t exist in 2008. Before Dropbox and its competitors, there was Remote Desktop and VPNs…both painfully slow and bug-prone. Smartphones barely existed. High-speed internet was not ubiquitous. Proprietary software generally lived on office desktops rather than in the cloud. Video conferencing was buggy and low resolution, whereas virtual meeting technology is excellent now. The list could go on.

None of that is news, and everyone has noticed the growth of remote work. But I don’t think that the full implications of these technologies have really dawned on the average employer. Sure, some people get to work from home on Fridays, and some part-timers barely show their faces in the office. And there are some companies, particularly tech companies, that have large numbers of employees working from home. But the average company hasn’t adjusted its MO too much.

That could change when they’re under financial pressure and need to cut costs. Even partly remote work will allow smaller, cheaper office footprints, and fully remote workers could be paid less if they work in lower COL regions.

In articles about Coronavirus, the theme of remote work comes up repeatedly. People stuck in quarantine for weeks are just working from home without much difficulty. In China, entire school systems have shut down and students have been attending classes online. It's really pretty easy to do now. This could end up being a proof of concept for larger-scale remote work.

I know the arguments against it: the loss of water cooler talk, random interactions, networking, and camaraderie. Clearly offices aren’t going anywhere. But the benefits of these things and the costs of commuting vary by person, and even a marginal change will substantially affect CRE.

An increase in remote work is likely to have at least two effects:

First, office space demand will decline, or at least increase at a slower rate. Companies won’t need any space for totally remote employees. The rise of partly remote workers will generate compact open offices and “hoteling”, as employers notice empty desks and try to save on rent. This could create a vicious cycle that accelerates the trend: since many employees hate these office layouts, they’ll work at home more, leading to more empty seats, leading to further office redesigns…

Second, residential development will shift somewhat towards the outer tiers of suburbia, as many employees who wouldn’t tolerate three hours of commuting per day will tolerate it twice per week. The trend could increase as fewer days of commuting per week means fewer cars on the road and less congestion, and therefore easier commuting from the cheaper suburban fringe. The shift will likely be strongest in coastal cities with high real estate prices.

 
Most Helpful

Good post. It's about time someone brought this up.

Personally, I think remote work is extremely overrated and don't see it catching on as much as the rest of the world thinks it will. Do it sometimes for my current gig and while the flexibility is nice, I have trouble getting shit done at home and don't love posting up at Starbucks or the library. Too many distractions + no bosses and peers looking at my computer screen + my dogs bark and want attention + I can beat off whenever I want, etc. = entire day gone and I've done like a half hour of work. Need an actual office to put me in work mode and I know I'm not the only one who feels this way.

I'd be cool with doing it one day a week as long as I still had my own assigned space at the office. Fuck that desk-sharing bullshit.

 

I agree but I’ll add this doesn’t stop at office deals. For multifamily: I don’t want to live too far from where the jobs are. That commute would suck. But that commute 3 days a week where I can get a bigger space? Might be worth it. Those 3 days my car drives itself for the commute? Worth it even more.

I think that would level out demand in slightly further away areas. It won’t make Columbus the next Manhattan, but it could make some outer boroughs more attractive.

“The three most harmful addictions are heroin, carbohydrates, and a monthly salary.” - Nassim Taleb
 
crusty bumhole:
Good post. It's about time someone brought this up.

I was betting that discussions around remote work would go way up because of the Coronavirus, and that someone would post a thesis like the OP. I agree, though it's definitely late, especially coming after the epidemic has grown to be so alarming.

I feel that remote work / telecommute is often undervalued yet over-hyped. There's a lot of optimistic talk about it, but usually only in start-ups and small digital media-oriented companies, and in certain white-collar spaces, like the OP mentioned. Having at least the option, and the supporting structure, to work remotely is just good corporate policy to have in case of disaster.

I understand that some will find working outside the office to be challenging due to distractions and whatnot. I would prefer working at home because it's a much more controlled and comfortable environment than an office, particularly for someone with health issues that affect dietary needs, and skipping the otherwise necessary time, money, and energy expenditures far outweigh going into an office for whatever perks are there.

Perhaps the onset of 5G and the recent epidemic will result in something in this arena.

 

Despite many people having declared for years that remote work is going to disrupt commercial office, most Fortune-500 type companies of the world are actually dialing backtheir work from home policies after seeing noticeable losses in employee productivity.

Although there is some bad press swirling around the bigger co-working companies out there, I do think that the co-working concept has fundamentally changed the office landscape as a whol. Even in buildings with traditional leases in place, landlords are being pushed to do more and more to make their buildings desirable places to spend time/fun by amenitizing common areas, bringing in creative food and beverage options, hosting events for tenants, etc. I expect this trend to continue, with landlords/buildings being evaluated based upon on the suite of services offered just as much as they are on the quality of their space.

As far as the remote work concept goes, I don't see demand for office space in Tier 1 and Tier 2 cities going anywhere anytime soon.

 

I agree. I would also attribute uptake in amenities to the large millennial population now in the workforce as well as Gen Z population entering the workforce. This population emphasizes the "live work play" environment more than any other in the past. The "put your head down and work" mentality is starting to dissipate, and you will be hard pressed to find any Class-A office space without a tenant lounge or fitness center these days.

 

Something to remember with remote work in general is that a lot of people hate, or are unproductive, actually working at their kitchen table.

In the apartment world, we’re building “micro-offices” into the amenity space at all of our buildings and they are one of the most used amenities, period.

Commercial Real Estate Developer
 

They are super easy (and cheap) to build too.

Most apartments have so much amenity space that is only there for looks and "selling the dream" and is never used. Making amenity space functional is a good thing.

Commercial Real Estate Developer
 

Remote work is definitely a growing trend that multi-family developers can take advantage of by including more work-spaces to their complexes. However, I don't think it will be as big of a disruption to office space demand that people are making it out to be.

 

The point wasn't that Coronavirus is a long term trend, it was that the reaction to it reveals something that's been the case for a while now: remote work is feasible at a significantly larger scale than it used to be.

A couple of headlines I've seen in the last few minutes:

Twitter: Beginning today, we are strongly encouraging all employees globally to work from home if they’re able.

The majority of Google's 8,000 staff and contractors in Ireland have been told to work from home tomorrow after a member of staff reported flu-like symptoms.

 

I was reading a study a couple of weeks ago that stated that the average office worker spends 1/2 of their time collaborating and 1/2 their time working solo. The conclusion of the article wasn't that there needed to be a reduction in office space, but better segmentation/amenities so that people were able to work in different environments for the different types of work.

While technology to date has made it easier to work from home, I think it will be fairly far off before traditional offices truly embrace it.

 
mrcheese321:
The conclusion of the article wasn't that there needed to be a reduction in office space, but better segmentation/amenities so that people were able to work in different environments for the different types of work.

This is also how the most up to date office designs are trending.

Commercial Real Estate Developer
 

Childcare costs are crazy. I had a friend (both Husband and Wife are attorneys) determine the breakeven salary at $60K for working vs stay-at-home dad/mom. That may be high, but at one point, working from home will be a necessity to make ends meet. Further, all the baby boomers are deflating (if you think a 6-month old baby cries, try a 75-year old Republican that can’t find the Clicker.) Either the cost of care will fall/gov subsidies/tax breaks or employers will have to accommodate a workforce that can’t afford to work in an office every day.

I have no idea how a single parent raises kids, works a job, and has time to cook and clean. Props to all of them out there.

“Capitalism: God’s way of determining who is smart and who is poor.” Ron Swanson
 

Workplaces are definitely trying to be more flexible to accommodate modern family situations, but in the end kids are elective. You can't expect all workplaces to allow work from home for all employees because some decided to have kids.

 

Nisi ut suscipit consequatur dolor est. Rem accusantium nesciunt eum ad architecto illum. Voluptate id perferendis libero maxime consectetur qui voluptatem.

Career Advancement Opportunities

March 2024 Investment Banking

  • Jefferies & Company 02 99.4%
  • Goldman Sachs 19 98.8%
  • Harris Williams & Co. (++) 98.3%
  • Lazard Freres 02 97.7%
  • JPMorgan Chase 03 97.1%

Overall Employee Satisfaction

March 2024 Investment Banking

  • Harris Williams & Co. 18 99.4%
  • JPMorgan Chase 10 98.8%
  • Lazard Freres 05 98.3%
  • Morgan Stanley 07 97.7%
  • William Blair 03 97.1%

Professional Growth Opportunities

March 2024 Investment Banking

  • Lazard Freres 01 99.4%
  • Jefferies & Company 02 98.8%
  • Goldman Sachs 17 98.3%
  • Moelis & Company 07 97.7%
  • JPMorgan Chase 05 97.1%

Total Avg Compensation

March 2024 Investment Banking

  • Director/MD (5) $648
  • Vice President (19) $385
  • Associates (86) $261
  • 3rd+ Year Analyst (13) $181
  • Intern/Summer Associate (33) $170
  • 2nd Year Analyst (66) $168
  • 1st Year Analyst (202) $159
  • Intern/Summer Analyst (144) $101
notes
16 IB Interviews Notes

“... there’s no excuse to not take advantage of the resources out there available to you. Best value for your $ are the...”

Leaderboard

1
redever's picture
redever
99.2
2
Secyh62's picture
Secyh62
99.0
3
BankonBanking's picture
BankonBanking
99.0
4
Betsy Massar's picture
Betsy Massar
99.0
5
CompBanker's picture
CompBanker
98.9
6
dosk17's picture
dosk17
98.9
7
GameTheory's picture
GameTheory
98.9
8
DrApeman's picture
DrApeman
98.9
9
kanon's picture
kanon
98.9
10
bolo up's picture
bolo up
98.8
success
From 10 rejections to 1 dream investment banking internship

“... I believe it was the single biggest reason why I ended up with an offer...”