The Price of Work-from-Home: Commercial Real Estate in the City and the Suburbs

Abstract

We examine how the COVID-19 pandemic and the shift to working from home (WFH) affected urban and suburban commercial real estate (CRE) prices in US cities. Urban CRE prices drop substantially post-2019 (-6%) but the effect is not uniform across cities and building types. The decline is predominately driven by buildings in cities with overall high WFH propensity and long commutes and by apartments and older properties. We additionally find significant urban price sensitivity to local WFH exposure with the pre-2020 premium associated with proximity to high levels of local WFH diminishing substantially by 2021. This effect is especially salient for buildings in high WFH cities, high commute cities, as well as for apartments and older properties. Suburban buildings are less sensitive to local WFH exposure with no significant change in the slope of the gradient post-2019. Further, in cities with overall high WFH propensity and cities with longer commutes on average, suburban prices increase relative to urban prices post-2019 generating suburban price stability across all property types and significant price increases for newer properties indicating a flight to suburban quality. We additionally find evidence of a decline in transaction activity for institutional investors post-2019, and no evidence of information asymmetry in the form of differential post-2019 trends for local versus non-local buyers and sellers.

Keywords: Commercial Real Estate, COVID-19, Work from Home