Here’s What All That WFH Uncertainty Means For Retail and Housing

Nearly a year and a half into the pandemic, the future of remote work remains unclear, with rumblings afoot in the professional services and tech sectors over who will return to the office first (and where). The outcomes of these decisions will influence not only where people work, but where they live and where they shop, according to John Chang, senior vice president and director of Research Services at Marcus & Millichap. 

“Several core gateway markets experienced a significant exodus when companies shifted to working from home,” Chang said. “Office workers left the urban core of cities like San Francisco, New York, Boston, Chicago, and Washington D.C., moving either to the local suburbs or other cities altogether. And now the big question is whether employees will return to these major urban hubs.”

But there’s a disconnect: while many companies are pushing for full return to in-office work, many employees don’t want to return. Financial services firms like JPMorgan are learning heavily toward a full return, citing the benefits of productivity and collaboration. On the flip side, tech-centered companies like Apple, Google, and Twitter (as well as institutions like Citigroup and Vanguard) are choosing more flexible models. 

Chang points to a recent survey of small biz by digital.com, which indicates that 39% of companies surveyed plan to bring all employees back full-time, while 17% are planning for a hybrid model. About 10% will have all employees working remotely full time, while another 20% say they’ll leave the decision to employees.

The outcome of these decisions will have a natural impact on office demand, Chang says. Office vacancy has surged 310 basis points since the onset of the pandemic to 16%, the highest level since the Great Financial Crisis, driven by negative net absorption in the next year. But “the jury is still out” on whether demand will revive post-pandemic.

“Theoretically, if 10% of companies switch to full remote, the vacancy rate could rise further, but it looks like momentum is shifting in favor of working from the office, at least part time,” Chang says, noting that employees are increasingly saying they miss the structure of working from the office, and some recent reports have indicated that WFH productivity is beginning to sag.

This suggests “a rolling migration back toward working in the office,” according to Chang. “This will probably be a multi-year process and there will be increased adoption of flexible hybrid models—but it should bolster office space demand over time.” 

This will in turn affect shopping and housing.  Even a partial return to the office could revive demand for retail in the urban core. And “the real estate repercussions roll on from there,” he says. “If people move back downtown, it will support demand for in-city retail space, urban last-mile industrial space, core self storage space, and more.”