Only 1.8 million people had access to the internet in 2010, and by 2016, that number had grown to about 3 billion. Analysts firmly believe that the entire world’s 7.6 billion people may have access to high internet speed by 2022. This high level of connectivity sets the stage for both businesses and not-for-profit organizations to take advantage of remote work.
A recent report by Review 42 suggests that before the COVID-19 pandemic hit, approximately 4.7 million people were already working from home. The pandemic accelerated that trend and is believed to have a tremendous impact on the kind of properties the working people are interested in. So, what does this trend mean for real estate investors?
It is beyond doubt that properties that lend themselves to working from home have seen significant growth. But what specific properties often lend themselves to remote work? Where can you find them? What if your property doesn’t fit this category; are there changes you can make to ensure it resonates with the changing demand in the real estate industry?
Let’s respond to these questions.
The demand for office spaces is declining.
The concept of remote work has made its presence loud and clear. For example, a recent post in the New York Times warns that Midtown and Lower Manhattan, the United States’ biggest central business districts, have about 16.4 percent of their office spaces available for lease. This number is higher than comparative vacancy percentages after a crisis like the 2008 Great Recession and the 9/11 terrorist attack.
Real estate market analysts believe that this trend is not expected to abate, even as COVID-19 vaccines become globally available. As a result, companies across the United States are not expecting their staff to return full-time to their offices, though many do not expect to work from home 100 percent of the time.
Buffer, a social media analytics company, recently surveyed 2,300 remote employees. Ninety-seven percent of remote workers said they would like to continue working remotely, at least a larger part of their time, for the rest of their careers. Although it is beyond doubt that remote work still has many kinks like loneliness and work-life balance to work out, 97 percent of the survey respondents said they would recommend the concept to their peers.
At the same time, some theorists believe that the higher level of creativity, productivity, and innovation linked to shared workspaces, especially urban areas, is likely to create a perfect floor for the vacancy crisis. If you plan to invest in office spaces, consult with a highly experienced commercial real estate analyst to evaluate your options.
Reframing current properties to accommodate remote work
One common trend in the real estate industry is writing rental listings that often reframe homes that were not explicitly designed with remote work in mind as capable of accommodating the concept of remote work. This is because not every potential property seller can afford various home improvement projects that could add value to rental properties while adding enough space to support home offices.
In the case of most real estate investment strategies, putting a significant amount of dollars into property improvements could drastically lower the expected cash on cash return and probably worsen a cap rate. But this does not mean your property cannot support work from home. Some of the essential ideas property sellers will want to consider include;
- Market a three-bedroom property is a two-bedroom apartment with a professionally designed or dedicated office space.
- Market large walk-in closets or extra big hallways and accessory dwelling units as opportunities for dedicated home offices.
- Advertise studio apartments with open floor plans as offering ample room for office chairs and desks.
- A backyard or extra space should be marketed as an opportunity for home gyms or spaces for exercising.
- Consider dropping off listings at businesses and other organizations that offer their employees opportunities to work from home.
Investing in gateway cities, exurbs, and suburbs
The ability to work remotely means workers who want to move to busy cities have less holding them back. Indeed, this has accelerated the trend of shifting to exurbs and suburbs. To fully take advantage of such trends in the property markets, investors must consider putting their dollars in gateway cities, which are widely known as such because they are considered a gateway to the American dream but lagged behind when industries that propelled their economies shifted.
It’s important to mention that gateway cities offer outstanding opportunities to buy below-market value properties in most regions primed for reinvigoration. Indeed, gateway urban communities have transportation infrastructure, education, and healthcare systems. Moreover, these areas are usually found within a few hours’ drive from metropolitan areas.
Operating businesses in a rental property
Working remotely has inspired many people to run small businesses out of their homes or rental properties. Why not? It is like remote work, except for the fact that you are working for yourself. But for property managers, allowing tenants to operate a business out of a rental property is likely to pose opportunities and liabilities at the same time.
First, there is added wear and the risk of extra activities on the property. Also, allowing a tenant to operate a business in a rental property can be appealing to a prospective or current tenant to bring pets. Finally, just like pets, liability insurance paid by the tenant and questionnaires that ban some types of businesses can offer opportunities for investors without affecting their investments.
Whenever in doubt, talk to a professional
The impact of remote work on both commercial and residential real estate markets can’t be underestimated. The freedom linked to working remotely has inspired people to leave cities for exurbs and suburbs, with investors seeking out work from home-friendly properties. As a result, such property markets are experiencing growth, and the entire real estate industry is being transformed.
For this reason, it is easy to get caught up in the fast-growing trends and get confused about what may or may not work. If you intend to invest in real estate, consult with Advantage Realty & Land Management. We are committed to helping you from the start to the end of the entire process of acquiring or selling a property.