Work-from-Home Affects the Apartment and Office Sectors

Investors in US commercial real estate have become well-acquainted with the impact of remote on the office sector. After the COVID shutdown in 2020-21, full-time 5 days a week in the office has given way to a flexible 3-day average. The result is office occupancy averaging roughly 53.7% in a recent survey data.¹ Unused office space is dragging down property values and eroding office sector debt quality. 

At the same time, the impact of WFH on the residential sector is less obvious and less well-known. Anecdotal reports describe WFH protocols associated with the COVID shutdown allowing moves from high-priced locations to lower-priced locations. Survey data from the early months of the pandemic support such intentions. An October 2020 report shows “6.5% (of households) are planning on moving to a different area due to greater ability to work from home. An additional 2.5% are moving because someone in the household can work from home and another 2.5% are moving due to overall greater working from home job prospects.”²

A follow-up survey conducted in November 2021 reports that 2.4% of adults had already moved because of WFH and another 9.3% planned to do so. While most moves involved relocating to density cost locations within the same general area (within a drive of two hours of less), 28% were moving more than four hours away.³ 

The impact on housing markets from these movements reflects the combination of increased demand for living space along with demand for more pleasing (less dense, better weather, cheaper) locations. Economists at the Federal Reserve Bank of San Francisco calibrate the effect of WFH as “at least one half of the 24% increase in home prices between December 2019 and November 2021.” with similar proportional effect on rent growth.”⁴

But more recent analysis suggests that the impact of WFH on housing markets is both more complicated and far from over. The chief complication is the longer-term impact on housing supply. Many locations enjoying population inflow from WFH opportunities are areas with low barriers to construction. The pop in population, home prices and rents that emerged in 2020 and 2021 stimulated new development in those areas helped by the interest rate cuts enacted to deal with the COVID recession. For areas losing population, pressure on home prices and rents eased as demand declined. 

As of mid-2024, these forces are still playing out:

• WFH has stabilized but recruiting for fully remote jobs is declining
• Managers are predicting shrinking WFH activity
• Migration from larger, more expensive metros to smaller, cheaper metros is declining
• New apartment supply in areas that enjoyed strong in-migration in 2020-21 is still booming with absorption compromising rent growth

Work from home stable… for now

As shown in Figure 1, WFH exploded from an estimated 4.7% before COVID to roughly 60% during the 2020 lockdown. It then dropped sharply as the pandemic eased. WFH has been tracked by the US Census Bureau in the Current Population Survey since October 2022. That survey shows that full-time work-from-home is hovering at roughly 11% of total employment as of mid-2024.⁵

Figure 1: Pandemic’s effect on share of people working from home

Source: Federal Reserve Bank of San Francisco, Economic Letter. Data as of September 26, 2022.

Opportunities for fully remote work are declining. Since reaching a high of 10% of job listings on the Indeed recruiting site in 2022, the recent share is 7.6%.⁶

Figure 2: Share of job listings on Indeed that are remote or hybrid

Source: Indeed and Axios Visuals. Includes postings that mention remote or hybrid keywords. Data is daily from January 1, 2019 to July 31, 2024.

Surveys show that corporate managers expect the decline to continue. A KPMG survey of 1,300 global CEOs cited 83% of respondents expecting their companies will shift back to requiring five days of office attendance sometime in the next three years. KPMG reported that the ratio was 64% responding in that way in the 2023 survey.⁷ Shortly after the release of the survey results, Dell announced that all salespeople are now required to be in the office five days a week. In March 2024, Dell had set a three-day a week in the office minimum. Amazon announced in September that five days in the office would be required starting in January 2025. In late October, the Flex Index for 3Q2024 showed that 33% of companies were now requiring five days in the office. This is up 2% from the prior quarter.⁸

Implications for population movement

Shrinking opportunities for fully remote work suggest that population migration associated with such opportunities will decline. Moreover, if employers increase in-the-office requirements, some employees who relocated over recent years to take advantage of remote work might reconsider their move. This might promote a return to the larger metros that lost population due to domestic outmigration in recent years.

Smaller metros of less than one million but at least 500,000 gained population at an average 0.4% annual rate from domestic migration over the 2020-2023 period. The strongest inflows were concentrated largely in the southeastern US, especially Florida. Of the 58 metros in that size category, only 18 lost population from domestic migration which excludes population changes related to international migration. Those loser metros include largely “rust belt” locations that had been shrinking prior to COVID.⁵

In contrast, the 53 metros with population of at least one million, saw an average -0.07% annual pace of domestic out-migration over the 2020-2023 period with 35 of the 53 showing loses.⁵ These losers include rust belt locations, such as Chicago and Detroit, but they also include the nation’s largest coastal metros, New York and Los Angeles, along with tech sector leaders, San Jose and San Francisco. The tech sector is identified in the Flex Report as the most accommodating of remote work with 96% of companies endorsing “flexibility.” In addition, the Flex Report identifies San Jose and San Francisco as having the most companies offering flexible work locations at 92% and 90%, respectively.⁸

The rearrangement of population during the COVID years contributed to a sharp uptick in multi-family construction in the metros enjoying population strong inflows. As shown in the Figure 3, the ten metros with the largest percentage inflows from domestic migration over the 2020-2023 period had relatively huge additions to apartment inventory over the 2019-2024 period. The ten metros with domestic outmigration had relatively modest growth in apartment inventory.

Figure 3: Apartment market comparison

	Domestic migration 2020-2023	% Change inventory 2019-2024	Market effective rent growth 12 mo-2024	Net % inv delivered units 12 mo-2024	Vacancy rate 2024	Change in vacancy rate 2024 vs 2019
10 metros with largest % inflow*	1.81%	40.3%	-0.5%	8.2%	11.5%	3.4%
10 metros with largest % outflow**	-1.08%	8.1%	2.1%	1.4%	5.3%	-0.4%

*Boise, Charleston SC, Daytona Beach, Ft Myers, Greenville SC, Knoxville, Lakeland, Melbourne, NW Arkansas, Sarasota.
**Boston, Chicago, Honolulu, LA New Orleans, NY, San Diego, Fan Francisco, San Jose, Washington DC.
Source: US Census and Co-Star.

For the ten strongest inflow metros, construction continued apace in 2024 accounting for an average 8.2% addition to inventory as part of the 40.3% for the 2019-2024 period. For the weakest ten metros, 2024 is delivering only a 1.4% addition to inventory as part of the 8.1% for the 2019-2024 span.⁸

The relatively stronger inflow of new supply boosted vacancy rates in the metros with the largest population inflows to a current 11.5%, up 3.4 percentage points from 2019. The pressures of excess supply have also kept a lid on rent as shown in the average -0.5% change in effective rent in those metros over the last year (Figure 3). For the 10 metros with the largest population outflows, muted construction has limited vacancy rates to a current 5.3% allowing effective rent to grow 2.1% over the last year.⁹

The data suggest that developers reacted with enthusiasm to the surge in demand after COVID emerged in 2020. But their enthusiasm overshot creating excess supply, especially as the pace of migration diminished in 2023 versus 2021-2022. The 0.4% annual average rate of domestic in-migration for the 58 mid-size metros described above, smooths the individual annual readings: 0.01% in 2020 during the COVID lockdown, 0.68% in 2021 as WFH took hold, 0.49% in 2022 and 0.35% in 2023 as conditions settled down. It is not surprising that the strong 0.68% 2021 inflow might have contributed to developer euphoria.⁵ 

Looking ahead, excess supply in the mid-size metros may linger longer than expected as fully remote work becomes less available. Moreover, some of the out-migration from the larger metros might reverse as employers push for full-time in the office. The bottom line calls for continuing monitoring of the impact of WFH on both the apartment and office sectors.

1. Kastle Back to Work Barometer, 10-City Average, Dec 16, 2024
2. A. Ozimek, “Remote Workers on the Move,” UpWork.com.
3. A. Ozimek, “The New Geography of Remote Work,” UpWork.com.
4. J.Mondragon and J.Wieland, “Housing Demand and Remote Work”, FRBSF, May 2022.)
5. US Census Bureau in the Current Population Survey. Data as of October 2022.
6. Indeed and Axios Visuals.
7. KPMG.
8. Flex Report, flexindex.com. Data as of Q3 2024.
9. Source: US Census and Co-Star. 

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