New York City asking its 80,000 employees to return to the office starting May 3 is a signal that the end of remote work is nigh for many. But for some, the days of long commutes on trains and buses, or on overcrowded highways, may be over for good, whether in the big city or in smaller metros and suburbs across America.
Some companies, like Bay Area-based Salesforce, announced last month a “Work From Anywhere” strategy and estimated that 65 percent of its 9,000 locally based employees will take advantage of its new system. This is just three years after the cloud-based software company opened the highest office tower (1,070 feet) in San Francisco, two-thirds of which is now rented to other tenants.
Jack Dorsey, CEO of Twitter, told his 5,200 employees in May that they could work from home forever. Other tech companies have followed suit, but the story is radically different for service workers, many of whom have suffered as city centers that once were full of knowledge workers have been hollowed out.
As Covid-19 forced many Americans into home offices, companies learned that they can save vast sums if they cut back on rented office space in expensive urban centers. What this means for the office-canyoned streets of places like Midtown Manhattan or the redevelopment of downtown San Francisco remains to be seen, but it’s clear there is no going back to the old way.
“This pandemic was a rapid experiment in people’s relationship to work,” says Daniel Bornstein, a real estate attorney in San Francisco, adding that the places that stand to benefit the most are those second-tier cities with cheaper housing markets. “People don’t need to be in a central location to work.”
In search of cheaper housing, and more space
Housing affordability and available inventory are two factors driving the migration from cities, according to Don Ganguly, senior vice president of Mynd Investor Services. With remote offices, people realize: “I can go to a place that is more affordable,” Ganguly said. “I don’t think that’s going to change any time soon.”
Much of the growth larger urban centers like the Bay Area is seeing is east toward Livermore and Tracy, what Ganguly calls “proximity expansion.” These areas are connected to the Bay Area but now that people don’t need to commute to work five days a week, they can move further away.
“A worker can go to a secondary city and set up shop there,” he said. “I see that phenomena continuing.”
At one time, Los Angeles saw those who wanted more space and better home values move out to Riverside and Corona. Now these cities are population centers on their own.
“If you continue to expand out, you’ll see satellites to main cities,” Ganguly said. “It’s just a matter of time. It’s a playbook that is well-established.”
Factors to consider when deciding where to buy
Post-pandemic, some cities are better positioned to emerge as stronger, argued Carly Tripp, a chief investment officer for Nuveen Real Estate.
Cities like New York and New Orleans took a huge hit when the tourism trade dropped off a cliff, while places that relied on non-cyclical industries fared better, including information technology (San Jose), life-science (Boston) and defense (Washington, D.C.).
Tripp recommended investors evaluate a variety of factors when deciding where to buy:
- Employment in industries most- and least-negatively affected by the pandemic
- Indicators of coronavirus severity, such as mortality rate, unemployment claims and population at risk
- Projections of economic and fiscal health
- Exposure to fossil-fuel industry employment and generation/production
- Proportion of revenue from “elastic” sources of income
- Proportion of the workforce employed by small businesses
- Projected unemployment rate and gross metropolitan product growth rates
- Proportion of non-current commercial loans
- Change in consumer spending year-over-year, or data measuring mobility
Ganguly said that because the commercial real estate market is suffering, a lot of capital is being redirected into the single family space.
“Developers look for the availability of land and proximity to urban centers,” he said. “There is still a lot of land in this country to be developed.”
‘Satellite cities’ make for sound investments
Developments like a 152-home rental community under construction 15 miles north of Tampa, called Avilla Suncoast, are examples of built-for-rent single family home communities that are meeting the demand for housing among millennials who are now forming families.
Ganguly believes these new “satellite cities” will be successful because they are bringing on infrastructure on quickly, opening malls and shopping districts so that residents can minimize travel to the nearby city.
These built-for-rent communities, which were first started some nine years ago, also appeal to young singles and empty-nesters who want the convenience of a professionally managed rental property that is bigger than an apartment. Some do not have the savings for a down payment, while others don’t want to deal with the maintenance that comes with home ownership. NexMetro, the developer of the Tampa community, built their first Avilla project in Goodyear, Arizona, in 2015, and now they have more than 30 developments, near cities such as Phoenix, Denver and Dallas.
As some states see populations rise, others decline
States like New York and California, which were viewed as destinations for opportunity, are now seeing more people move out than move in. New York's population continued to decline more than any state in the nation, new figures released in December by the U.S. Census Bureau show. Population fell by 126,355 people between July 2019 and July 2020, to 19.3 million, a drop of 0.65%, the most of any state by total and by percentage. California lost 69,532 people during that same period, the first time it has seen its number of residents fall since 1900.
The four fastest-growing states are all out West — Idaho, Nevada, Arizona and Utah — and perhaps it’s no surprise that they are all in close proximity to California, where a housing shortage has driven up prices and the cost of living is higher than the surrounding region.
Still, Bornstein says the jury is still out as to where population gains will settle once the country emerges from the pandemic. He, for one, still has some faith in the California dream.
“The big variable I would be looking at is if these different areas can build employment opportunities,” he said. “California has that entrepreneurial spirit.”
The places that saw growth during the pandemic were not a surprise, given the trend that the population shift in the United States has been south and west in the last couple decades.
Sunbelt cities still seeing fast growth
According to a report on financial news site WalletHub in October, of the top 25 fastest-growing cities in the country, six were in Texas, five were in Florida, three were in Nevada and two were in South Carolina. However, the top three for growth among mid-size cities (after number one Fort Myers, Florida) were Bend, Oregon; Meridian, Idaho; and Milpitas, California. The top five large cities for growth were: Henderson NV; Seattle; Atlanta; Miami, and Denver. (WalletHub measures population growth, the decrease in unemployment rate and growth in regional GDP per capita to determine its rankings.)
Anecdotally, stories abound about moving vans lined up in the streets of New York City while fleeing city residents are sending housing prices soaring in its suburbs. It’s unclear whether this trend will be sustained in the long term as vaccine rates rise and the pandemic is brought under control. And with Silicon Valley’s tech workforce abandoning the office, the future may mean a distributed workforce that spreads tech talent around the country.
Still, the Silicon Valley has been the epicenter of the tech start-up revolution for the last 70 years, and one of its most famous innovators once said: “Creativity comes from spontaneous meetings, from random discussions. You run into someone, you ask what they're doing, you say 'Wow,' and soon you're cooking up all sorts of ideas.”
These sorts of spontaneous meetings don’t occur over Zoom, and though it’s impossible to say what Steve Jobs would have said about our experiment in remote work, it’s conceivable that he would have taken a contrarian approach.
Tech jobs spread to other parts of the country
Ganguly sees the benefit of the distribution of tech jobs to other parts of the country. “When secondary tertiary cities attract more of a population growth,” he said, “you get a little of that tech magic, which can lift many boats.”
If tech workers can do their jobs in places with lower real estate prices and find the quality of life they desire, which often translates into more living space and less traffic, the race is on. When these high-tech jobs move to so-called second-tier cities, opportunities open up for local entrepreneurs. “If there is some critical mass of people going into these cities some local company can tap into that,” he said.
With all this movement, the impact on the housing market is significant.
“The rental economy is booming because a lot of people cannot get a loan to buy if they don’t have a down payment,” Ganguly said. There are benefits for both investors and tenants, he added, who are getting all the amenities of living in a single family home even if they don’t have the cash to afford one.
Does working from home have staying power?
As for the durability of remote work, he believes that these satellite areas will retain their attractiveness. But he also sees the downsides of not working with people face-to-face, which removes the human connection and ultimately the loyalty workers feel toward their employer.
“You stay at a company because of the people,” Ganguly said. “Your line of sight is what keeps you at a company and if that doesn’t work you are out of there.”
Then there is the tyranny of email, Slack, and other work issues invading home life and extending the work day and spurring a lot of talk of burnout.
“People are merging their personal life with their work life,” he said. “On the flip side, it’s nice not to have to commute.”