Work from Home and Commercial Real Estate: Evidence from Stock Markets

Abstract

We explore investor expectations about the effects of work from home (WFH) on real estate companies during the beginning of the Covid-19 pandemic. We assess how differences in WFH exposure of listed real estate investment trusts (REITs) in European economies affect their abnormal returns. We associate WFH exposure with the property’s underlying major tenants and their announcements to work from home, i.e. tenant WFH intensity. We also use alternative metrics using REIT’s exposure to the office sector and the proportion of properties located in central business districts (CBDs). We show that REITs with higher WFH exposure have significantly negative abnormal returns independently of their domicile, sector specialization, Covid-19 exposure, or CBD exposure. In addition, using an event study of WFH announcements by tenants, we find significantly negative cumulative abnormal returns, in line with above findings. We demonstrate that equity investors incorporate news related to WFH when pricing real estate companies in the early stages of the Covid-19 pandemic.

Keywords: COVID-19, work from home, real estate investment trusts, stock return, tenant

JEL Classification: G14, R30, D80