‘Return to the office is dead’ says Stanford economist. As more offices sit empty, is the bell tolling for commercial real estate?

Moneywise
‘Return to the office is dead’ says Stanford economist. As more offices sit empty, is the bell tolling for commercial real estate?
‘Return to the office is dead’ says Stanford economist. As more offices sit empty, is the bell tolling for commercial real estate?

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The great post-pandemic return to office (RTO) is a polarizing issue in the U.S. labor market.

While many companies want their workers to return to the office for at least a few days a week, the reality is that Americans like working from home (WFH) and the flexibility it provides.

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Employers seem to be coming to terms with that fact. After a big push from 2020 to 2022 to bring employees back to in-person work, the RTO trend stalled in 2023, according to data from Stanford economics professor Nick Bloom.

“WFH levels have become ‘flat as a pancake.’” he recently posted on X. “Return to the office is dead.”

Here’s why this employment trend is having an eerie impact on commercial real estate across the country.

The impact of office vacancies and prospects for real estate investors

In November 2023, the percentage of U.S. employees working remotely or with a hybrid working arrangement was sitting at just under 42% and has been sitting at roughly that level since 2021.

Many bustling hubs are now starting to look like ghost towns as office occupancy in the 10 largest U.S. metro areas has been hovering at around 50% this year, according to Kastle data.

Office vacancies on a national level hit a 30-year high of 18.2% in the second quarter of 2023, according to CBRE data — with empty offices or “ghost towers” cropping up from coast to coast.

This is a major driver in the overall dive in office property values. Shifting office demand could result in a 35% plunge in office values by the end of 2025, according to a recent report from Capital Economics. It also projects that those values are unlikely to recover before 2040.

Office property values might be on the decline, but there is still a healthy appetite for necessity-based commercial real estate*,such as grocery-anchored retail, multi-family housing and industrial properties.

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Read more: This Pennsylvania trio bought a $100K abandoned school and turned it into a 31-unit apartment building — how to invest in real estate without all the heavy lifting

Investors own a share of institutional-quality properties* leased by national brands like Whole Foods, CVS, Kroger and Walmart, which provide essential goods to their communities.

Because the properties are necessity-based, they’re an integral part of the local community and aren’t as volatile as offices.

Residential real estate also remains a solid option for investors hesitant to dive into downtown real estate, given the current remote work-from-home landscape.

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You can also gain access to residential real estate through real estate investment trusts (REITs), entities that specialize in owning and operating properties that generate income.

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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.

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