Hi all. Newbie investor here. The only property I own right now is the one I live in, a condo in Somerville, MA. I've been doing a lot of reading and meditating on where the next opportunity will be coming out of where we are at right now. One topic that I keep re-visiting is the long term impact of telecommuting on the value of real estate in non-traditional areas. As someone who lives in the city, part of the draw of being here is proximity to high class educational institutions, but also proximity to the Boston tech scene for jobs. My feeling is that a lot of companies are going to think more critically about embracing employees working from home, both from the ability to reduce overhead in rent/lease costs, but also because employees are going to become more efficient doing such. 

What are some thoughts on how telecommuting will impact real estate value?

Brian

Hi Brian,

I think this may be true for some folks, but not for the bulk of people.  I have already heard a lot of people complain about not seeing their office people every day.  Working from home sounds great, but  the reality is, a lot of folks like going in.  The office likes having people in there because it creates synergies that you wouldn't other wise have.  

Welcome @Brian Driscoll and that's an interesting question.  I think it will take a generation or two for telecommuting to take hold over a traditional office environment.  If you think about it, this is a short term issue, the virus, and everyone will still have their commercial office leases and such, so I don't think we will see an immediate impact.  I can see the levels of telecommuting going up perhaps in the coming years as smaller companies start to say "do I really need that office?"  However, I think we are are generations away from a real shift culturally especially with bigger companies and conglomerates that are still run by people that think "the internet is a fad" or something.  These are the same people that still believe you get more productivity out of your employees when you keep track of how long they are at their desk....So while we might see a shift in the startup and small business space I don't see telecommuting taking hold until the generations of leaders and board members that we currently have in this country, over say 55 at the moment, are no longer in the workforce, or at least are no longer in control of company cultures.  

@Michael K Gallagher @Sarah Brown Thanks for the follow-up / replies. I think the idea that smaller / start-up companies may begin to consider telecommuting instead of an expensive commercial lease. I also agree with Sarah's point about the value of having people in the office. Perhaps there is a middle ground where people begin to transition to 1-2 days per week telecommuting. Does this open up the opportunity for living farther from city centers with a slightly less desirable commute if it is only 2-3 days / week?

Originally posted by @Brian Driscoll :

@Michael K Gallagher @Sarah Brown Thanks for the follow-up / replies. I think the idea that smaller / start-up companies may begin to consider telecommuting instead of an expensive commercial lease. I also agree with Sarah's point about the value of having people in the office. Perhaps there is a middle ground where people begin to transition to 1-2 days per week telecommuting. Does this open up the opportunity for living farther from city centers with a slightly less desirable commute if it is only 2-3 days / week?

I question if it would make sense for those start-ups to do telecommuting when they could do shared offices for a pretty reasonable  expense.  Here they have open offices that folks rent a desk from and they come in and work like a normal office.  You could have 50 different businesses in one building that would have normally gone to a single tenant.  Super interesting concept.   I could never see myself working in one.  However, as a start up, to save money, absolutely.  

I'm hoping there's growth in some LCOL areas. Live in the midwest, work for a company located in Boston. 

@Sarah Brown I totally agree.  Although places like WeWork and such may have not gone about the flexible work environment model in the correct way there is certainly something to be said for still wanting an office space, but a more shared or less permanents lease model would certainly be attractive to many startups....including myself! 

Welcome @Brian Driscoll ! I think it's going to increase significance of residential real estate for a few reasons

- People are going to feel that their home is smaller and value the personal space that they have more. The lingering uncertainty in the market is going to be balanced out by people that were planning on moving prior to COVID or now wanting more space after being quarantined. 

- Companies that have been forced rely on their remote systems and processes, or develop them, are going to realize that it's easier than they thought and possibly worth the reduced overhead expenses. That they can downsize their office to have some employees WFH either all or part of the time. This essentially shifts the company's overhead office expenses onto the employee and further supports the previous point, that employees are going to value their home space more. 

- I completely agree with @Sarah Brown that just as companies are being forced to work remotely, there's a potential balance between completely WFH and a dedicated office with mixed-use coworking spaces.   

@Brian Driscoll I have already predicted there will be a major shift. Think about why many people live where they live. One of the main reasons is being close to their job or schools. As a result you find real estate near business centers is high value. Now companies have people working form home. They are forced to adopt policies and technologies and they will see that it works. 

Employers will realize two things:

1. Employees can be productive and happier working from home.

2. It is a major cost reduction for employers as they can reduce office space in high rent areas.

Employees will realize two things:

1. Why pay high rent or a high mortgage for a tiny house close to work.

2. Why sit in traffic for 2+ hours a day (or why deal with overpopulation, smog, etc.)

An employee that works in San Jose can buy a small house for $2M or they could head to the midwest or south and buy a gigantic house for $500K. The employer can have a happier employee that costs less money. After all, the main reason salaries are so high in places like San Jose is due to housing. We have already seen companies like Apple and Amazon open campuses in other cities to attract talent and reduce expenses.

Of course there are other reasons people choose to live where they live such as weather, cultural, family and friends, etc. Of course not everyone will leave these big cities, but there is no doubt in my mind that this will change business forever. If even 20% of employees work remotely, can you imagine the impact on commercial real estate or the impact on housing values in some areas? 

I also think we will see the de urbanization of america. Software engineers in SF are going to realize they don’t have to walk over heroin needles and human feces when they leave their 300sqft $6,000/mo studio. They’ve lived for three weeks without Starbucks and apple stores. 

And like it was said above. $500,000 will buy a lot in the Midwest.