Remote Work and Real Estate Five Years After Pandemic

As the five-year anniversary of the shift to remote work approaches, it is clear that some office buildings will never get back to where they were. A search for The Real Deal stories with “office distress” turns up page after page of articles documenting the carnage.

But a verdict on whether remote work is better or worse for businesses remains elusive. The real estate industry has a lot hanging on the answer.

So-called ghost workers appear to be more prevalent in home settings. One research paper found that 14 percent of software engineers working remotely do “almost no work,” compared with 9 percent in hybrid roles and 6 percent in the office full-time.

PayPal co-founder Peter Thiel made a similar claim in a TV interview. That could be a reason that tech companies have been among the most aggressive in requiring staff to come in, boosting office landlords.

At the same time, remote work has undeniable advantages, and various studies have found that people work more productively at home than at the office. That helps explain the trend of office-to-residential conversions.

One data point that favors remote work comes from the Bureau of Labor Statistics: From 2019 to 2022, most U.S. industries with large increases in remote work had substantial increases in output. Various other analyses have also shown productivity gains.

Still, your mileage may vary. People working in a nice office, with perfectly conditioned air, endless free coffee and ergonomic chairs are sure to be more productive than if they worked from a cramped home with whining toddlers clawing at their pant legs.

On the other hand, a remote worker who avoids two hours of daily commuting, small talk with colleagues and an hour-long lunch break might reallocate that time to work. The average remote worker saves 72 minutes of commuting and spends 40 percent of that time working, a National Bureau of Economic Research paper calculated.

Measuring the long-term effects of work location is much harder. It stands to reason that company culture rubs off more on in-office workers, and perhaps employees learn faster in the physical presence of colleagues. This means more in certain industries, and some companies have better culture than others.

Remote work policies also affect retention and recruiting. In general, firms that offer flexibility have an easier time hiring and retaining talent. Firms that have tried to get workers back to their desks have found it only slightly easier than putting toothpaste back into a tube.

Through the pandemic, real estate firms generally had more employees at their desks than other white-collar businesses have, with CEOs leading by example. But the bigger question for real estate is what office tenants are doing and will do in the coming years.

Investors who bet on office are wagering not only that companies will choose to keep signing leases, but that those companies will outcompete rivals that don’t.

Another way to put that is: The market will decide.

Or, in a single word: Darwinism.