Since the pandemic, we have observed a decline in property values in areas that previously maintained high valuations. The shift to remote working systems, which many companies continue to implement fully or partially even after the end of the pandemic, is the primary cause of this change. This prolonged shift in working environments has altered the geography of real estate values not only within individual Metropolitan Statistical Areas (MSAs) but also across various cities in the United States. In this context, investors should keep the following trends in mind.
Downtown areas have experienced the most significant changes in property values due to the increase in remote workers. The transition to remote work has allowed employers to cut costs associated with office space and has reduced employees' commuting times. Consequently, the demand for downtown office spaces has diminished, which, following the law of supply and demand, has led to an increase in vacancy rates and a decrease in property values.
However, downtown areas still retain high real estate value due to their long-standing focus on infrastructure development and a high density of cultural and arts facilities. To address the vulnerabilities of downtown areas, which were heavily dependent on office-based businesses, cities like Seattle, San Francisco, and Portland are planning to increase residential zoning in these areas. For example, legislation is being revised to facilitate the conversion of office buildings into housing, and planning policies that previously restricted residential development are being reevaluated. This indicates potential investment opportunities in downtown housing.
The rise in remote work has also shifted commercial consumption from office-centric downtowns to residential suburbs, leading to the closure of low-profit consumer service businesses in downtown areas and their relocation to the suburbs. Consequently, not only have consumer patterns shifted, but business owners are also increasingly relocating to commercial districts in the suburbs. This suggests that suburban developments that combine commerce and housing, without the need for office spaces, could also be a competitive development strategy.
Remote work has impacted property values not only in large cities but also in smaller ones. Smaller cities like Tulsa, Oklahoma, have leveraged remote work systems by offering incentives to remote workers, thus increasing their population engaged in high-tech jobs. This initiative, which began in 2018 and has been enormously successful due to the pandemic, brought a total of 2,000 people to Tulsa by 2022. Building on this success, other small cities have developed similar strategies to attract remote workers. This highlights the potential for housing development in smaller cities, which have historically been overlooked in real estate development discussions.
Q & A?
Jay Ha
Head of Urban Research
Doctoral student in Urban Planning at USC
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