Covid-19 induced remote work and its influence on cities’ real estate valuations

Abstract

The amount of work from home (WFH) in the U.S. rose to unprecedented levels during the health crisis caused by Covid-19, and it has remained at an elevated level ever since. The area of focus in this literary review is empirical papers estimating the value progression of the U.S. cities real estate market. I aim to answer how this rise in remote work has affected the U.S. real estate market during the Covid-crisis and why. The sudden change in housing, work, and consumer choices of newly remote workers’ emigrating from CBDs, had negative effects on the corresponding area’s service industry and real estate markets. Companies encouraged remote work in pursuit of reduced office costs and increased employee performance and thus, have no incentive to maintain expensive offices in CBDs. Surveys on the income levels, housing consumption and office presence demonstrate the housing purchasing power of remote workers and the lasting preference for WFH. Referring to the mechanisms behind the monocentric city model sets the environment where housing choices alter the utility of central business districts (CBDs). Empirical papers on major U.S. cities commercial and residential real estate value progression confirm the negative relationship between WFH rates and CBD real estate value, as predicted by the monocentric city model. CBD real estate valuations have since surpassed pre-pandemic levels indicating short lived losses, but value growth lags behind compared to mid- and low-density areas. Even though the U.S. economy recovered within a year of the initial shock of March 2020, it is important to define the influence that the lasting WFH-trend has on the economy’s different sectors in the following years.