How Work-from-Home Trends Affect Commercial Real Estate

The global pandemic crisis may be well over and behind us, but the repercussions of how it shifted our society are still playing out. One of the more predominant effects of Covid-19 was a massive increase in work-at-home or hybrid employees.

As of 2024, around a third of all working adults (18 years and over) work either in an at-home capacity or through a hybrid model. When you put that into the perspective of commercial real estate, it means those giant office buildings filled to the brim with water cooler gossip, endless cubicles, and late-night employee appreciation parties are left empty.

The next logical question is, how is this new working environment shifting the value, rent, and stakes of commercial real estate?

What’s Happening to Commercial Real Estate?

While home (residential) prices continue to rise at an exponential rate, commercial real estate is experiencing a very different trend. The annual commercial real estate investment valuation fell by 47% in Q4 of 2023. As of April 2024, those trends continue to fall, with expectations of hitting a bottoming-out situation in the next 1 to 3 years.

To be clear, this decrease isn’t sector-wide. Some industries are showing surprising resilience. For example, multifamily rents are up by 0.7%, industrial commercial spaces have grown in demand by 5.5% (probably due to an increase in manufacturing/e-commerce demands during COVID-19), and retail growth is also booming due to limited supply.

What Does Working from Home Have to Do with It?

Many investors and real estate entrepreneurs face the problem of stability. As it stands, roughly $800 billion in valuations could be wiped from the board due to vacant office buildings.

Even today, well after all the political fear-mongering and in-fighting, current office attendance is stabilized at roughly 30% below pre-pandemic levels.

The fact is that hybrid work models are here to stay. Employees are embracing the power of controlling their schedules, balancing work and life, and finally getting time to attend a child’s music performance or enjoy a meal with long-forgotten friends.

While there is undoubtedly an argument for “if it isn’t broke, don’t fix it” concerning productivity rates, the fear is that major cities that rely on these office spaces for tax revenue could face a severe decrease in available funds. Banks could face losses due to a lack of finance deals, and the available resources for completing new production or business activities may dry up.

Where Do We Go From Here?

Whether or not you agree with at-home or hybrid work models, they are not going anywhere anytime soon. Instead of over-analyzing how it will affect the future of commercial real estate, we need to view this as a fantastic opportunity.

One sector in particular is thriving during this shift in economic valuation. Those commercial properties being transformed into multi-use spaces are changing how we view this real estate. These are known as “co-working” spaces.

Think of co-working as a college campus. You have a building with lockable units for higher-echelon clients, as well as long tables and office spaces on the main floor that can be used, rented, or enjoyed by anyone from a private web designer to an at-home business investor. Even though the rise of at-home work is widespread, a good portion of people enjoy a work setting without the rigidity of traditional commercial spaces.

For example, in Salt Lake City alone, the increase of QoQ demand for co-working space went up 15% by Q1 of 2024. How about Minneapolis increasing by 13% or San Diego by 12%. These unique multi-use buildings have a lot of promise when you combine them with cafes, rent them out as specialty theaters to private groups, or even have event spaces for weddings or town gatherings in the evening.

What’s Next?

Working from home is the new norm. People want the flexibility of working whenever and from wherever they want. While this does have an effect on our economy, investors can either learn to adapt or risk losing crucial rental and complimentary income.

The best way to move forward is to take advantage of the low prices in commercial real estate. Now is an excellent time to pick up a sizable office space and turn it into a multifaceted co-working and auxiliary income center. With a bit of ingenuity, you can quickly turn a commercial space into a thriving collection of “mini businesses” that offer greater stability should another pandemic occur.

Better yet, having a co-working space or multi-use commercial property lowers the barriers of entry for SMEs and startups that would otherwise have to find a home in someone’s dirty garage. You are growing a new revolution of businesses that could reshape how our country changes, networks, and builds wealth.