We’re becoming a more globally connected society right before our eyes and millennial-themed workspaces are here to stay. In 2010, only 1.8 billion people had access to high-speed internet. By 2016, this had increased to 3 billion. Also, according to experts, all of the world’s 8 billion people may have high-speed internet access as early as 2022.
Advances in technology boost the proliferation of high-speed internet. Companies like Google and Facebook are leading the way by testing solar-powered drones that could deliver high-speed internet to remote areas from the air. Google’s X Company aims to “create radical technologies to solve the worlds hardest problems.” Not to be outdone, Tesla and SpaceX founder Elon Musk has asked the FCC for permission to launch 4,425 satellites into space as part of a plan to blanket the Earth with broadband. “SpaceX designs, manufactures and launches advanced rockets and spacecraft. The company was founded in 2002 to revolutionize space technology.”
The widespread availability of high-speed internet is already changing the way we work. Working remotely is on the rise, and it’s become more accessible than ever for companies to hire people abroad. It’s not just employees who love the ability to work from home. Employers see the benefits, too. Overhead costs are lower, and studies show that working from home can increase productivity.
The trend toward working remotely is going to have significant implications for the real estate industry. Here are a few critical considerations for real estate investors to monitor closely.
People may become less tethered to more expensive work centers. The cost of real estate is sky-high in cities like San Francisco, Los Angeles, New York, Miami, and Boston – and with good reason. These cities are major employment hubs that attract people from all over the world in search of well-paying job opportunities. Working remotely may mean that people no longer need to live in those areas to land jobs with companies based there. They can move to cities like Park City, Utah, where the quality of life is high, but job prospects are few and far between.
“This should lead to ascending real estate values in the most beautiful vacation spots, though it will take some time for that trend to accelerate as people reluctantly leave more’ target-rich’ (from an employment perspective) environments for the tranquility of their desired turf,” according to a Forbes article on the subject.
Zapier, a San Francisco-based tech company, has gone so far as to offer employees $10,000 to move away from the Bay Area where the cost of living is lower. Zapier will undoubtedly recoup the incentive through lower overhead costs, but the company also sees it as a way to offer employees a higher quality of life by allowing them to work remotely in a less expensive area. Zapier has nearly 70 employees around the world, all of whom work remotely.
WeWork's business model has a new threat: old school landlords. Worried that the shared office space giant will eat their lunch — as Uber did to taxis, Airbnb to hotels, and Redbox to Blockbuster — some major office building owners are copying WeWork's business model, providing shared office space on short, flexible leases for workers. Hines Interests, Boston Properties, British Land PLC and Tishman Speyer are doing the same with millennial-friendly workspaces (see here, here and here) that look to peel away potential WeWork customers.
Workers may be willing to live farther from downtown. Not everyone will be able to work from home every day. It’s just not conducive to some occupations (e.g., nurses, teachers, police officers) and some employers will want their team in the office more frequently than not. Nonetheless, a Gallup survey released last month found that 43% of Americans work at least some of the time remotely. Even senior-level managers are hopping on the bandwagon, with Mark Zuckerberg being one of the most notable CEOs who reportedly works from home once a week. The newfound freedom to work from home (even just occasionally) will inevitably affect where people decide to live.
Those who long for a single-family home in the suburbs may flee the city, accepting a longer daily commute if they only have to make the trip a few times a week. In exchange, they’ll enjoy the larger homes, lower real estate prices, better schools, and neighborhoods with lesser crime that typically characterize the suburbs.
Demand for specific housing features will change. The shift to working remotely is rocketing the importance of home offices. Working from the sofa, beach, or Starbucks just doesn’t cut it anymore. It might be easy to integrate a home office into a single-family rental property, but it will be harder to provide in smaller multifamily rental units. However, this doesn’t mean multifamily owners should turn a blind eye to the working remotely trend. Many multifamily developers are now building co-work spaces into their rental properties.
“When I was looking for apartments, a lot of buildings said they had an office, but when you got there you’d find this sterile room from the 1990s, lots of brown and mauve,” explains Maani Safa, the co-founder of Etch. “A space like that is utterly useless – an office should be about invoking a feeling of creativity and calm, it should be a place I want to bring people. Otherwise, I’d stay in my apartment.” Safa ultimately leased a two-bedroom apartment at the Abington House in West Chelsea, a multifamily building that offers a modern co-working space on the ground floor. Other developers are following suit, adding collaborative work studios and computer bars as part of their amenity packages.
Based upon these predictions, it might seem as though the growth of the remote workforce is going to spell the end of cities’ popularity.
Not so fast.
While some people may relocate to more affordable areas, we suspect the demand for downtown living will remain high. Cities offer a dense collection of restaurants, arts and culture, entertainment, and job opportunities that is hard to replicate in the suburbs. People will continue paying a premium to live in walkable, transit-oriented areas for the foreseeable future.
Real estate and technology are often looked at as different realms—but there’s growing overlap between the two sectors. Real estate investors need to monitor these trends closely to understand how advances in technology will impact the future of real estate. Those who remain at the forefront will be best positioned to protect their portfolios as the market shifts.