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  • Writer's pictureDr. Mark Lee Levine, Professor

ON-SITE vs IN PERSON WORK—Impact on Real Estate

We are all aware that with Covid #19 and subsequent events, the number of employees working from home or at least away from the office has dramatically changed.



The US Census Bureau has been tracking such changes.


A few of the more recent numbers from the Census Bureau on this issue has indicated some interesting statistics on such work-related issues.


“The share of U.S. jobs worked on-site dropped roughly 10 percentage points from 84% in 2019 to 74% in 2021, the first full year of the pandemic, according to the Survey of Income and Program Participation (SIPP).

The share of jobs done exclusively from home (fully home-based jobs) roughly doubled from 11% of all jobs in 2019 to 23% in 2020, before declining to about 21% in 2021.”


The implications of such changes and the impact on real estate, among other areas, is very important. The increase in office vacancies has continued to rise in most cities, especially large cities, throughout the US. The work from home position is an important factor shaping this change in office space and the demand for the same.

In turn, with a loss of part of the demand for such office space, landlords of office space are finding it more difficult to meet their projections for net operating income. Such reduction in net operating income in turn makes refinancing a challenge, since the loan to value ratio changes. In turn, lenders who will consider making new loans or renew loans on offices often require a greater equity position by the borrower who is requesting the loan. A failure to meet this and other loan requirements often results in a denial of the requested loan. Such denial of the loan may often result in a default under the existing loan, since the borrower may not be able to meet the payoff required under the existing loan that forces refinancing.


The trickle-down impact is also present. That is, if office space is not occupied to the level needed to support demand for smaller businesses, such as restaurants in the downtown area that “feed off” the traffic from the office buildings, it might reasonably be anticipated that some of these support businesses will also fail to meet their anticipated net operating income projections. This may produce more defaults and more failing businesses.

The Census Bureau also noted additional statistics as to jobs worked on site and in home.

“Jobs worked some days on-site and other days from home — referred to as mixed or hybrid work — represented the smallest share of all jobs worked each year but increased from around 4% in 2020 to 6% in 2021.


The category of essential worker was created by the Department of Homeland Security to characterize workers employed in occupations considered vital to the continued operation of the economy during the COVID-19 pandemic. According to DHS methodology, around 7 in 10 jobs overall were deemed essential in each survey year.”

The Census Bureau found that essential work was more commonly undertaken on-site and not in the home.


Interestingly as to real estate, the Census Bureau found that the share of jobs involving on-site real estate and leasing dropped from 67% in 2019 to 43% in 2021. Again, this trend, if it continues, has important implications to real estate investors, among others.


By

Dr. Mark Lee Levine, Professor, University of Denver





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