TABLE OF CONTENTS
LIST OF FIGURES
LIST OF TABLES
Projects funded using value capture techniques are inherently subject to the cycles and volatility of the real estate market. This appendix focuses on the Pandemic’s impact on the private and public office market and, to a lesser extent, the residential market. Although these are only two of several real estate sectors, they have a significant impact on transportation needs and have been sectors primarily responsible for funding many value capture projects. Though future economic shocks may have different impacts on office, housing, or other real estate markets, this discussion should be helpful in understanding some drivers of real estate change. It also suggests how the “new normal” make look like post-Pandemic office market and respective transportation infrastructure impacts.
The Pandemic’s impact on real estate demand may affect the future location of major employee occupational groups. During the Pandemic, a material number of employees have shifted to working from home. In April 2020, a couple of months after the Pandemic reached the U.S., only about 10 to15 percent of office employees were working in their offices. This represented about one-fifth of pre-pandemic rates. By September 15, 2021, a year and a half later, roughly 34 percent of all office employees worldwide were working in their offices. This compared to around 60 percent pre-pandemic, or slightly more than half of the expected rates pre-pandemic.103 This reduced office activity dramatically decreased commuting on all transportation modes, including car, mass transit, bicycling, and walking.
Many studies document that productivity of office employees during the Pandemic has been as good or better than pre-pandemic. A pre-COVID-19 study led by Stanford professor Nicholas Bloom of travel agents found a 13-percent increase in productivity from working at home due to less break time shifts and a quieter work environment.104Bloom colleague’s Jose Maria Barrero’s subsequent work found that working from home could raise productivity by 5%, with 54% due to true productivity gain and the rest due to commuting time savings.105 A random monthly survey of 2,500 employees per month during the Pandemic found that productivity was reported to be 4 percent above pre-pandemic productivity.106 Common explanations of such increased productivity include the elimination of commute time and less unproductive “water cooler talk,” more exercise time, the leveraging of quiet spaces at home for complex work, and greater flexibility to balance work and non-work needs.107
The rise of “hybrid” workplaces may reduce white-collar demand for commercial office space. A number of surveys suggest that a hybrid workplace may become the new normal.108 This may include three days in the office and two days out of office, as technology leaders Google and Amazon are planning. Facebook may allow more employees to work from home permanently.19 Other studies show that employees want to work at home at least 2.5 days per week.110 In one survey, over 40 percent of employees said that they would seek another job if they could not work from home part of the time.111 The pandemic’s “forced experiment” of working from home, has helped employees to experience telecommuting benefits, including less physical commuting time, ability to better address childcare and eldercare issues, and overall flexibility to manage work and non-work activities.112 However, for many “blue-collar” and “white-coat” employees, who work in manufacturing or warehousing and in customer-facing organizations like hospitals or retail, respectively, hybrid workplaces are generally much less possible.113 While it is difficult to project the ultimate impact of these changes, some studies suggest that all organizations will reduce space needs by 10 to 20 percent.114
The nature of the office–purpose, layout, location–may change. In a hybrid workplace, certain functions may remain in the office while others are accomplished elsewhere. For instance, “team-based work,” which includes formal meetings, intensive collaboration activities, training functions, and in-person interviews may be most appropriate in an office. Layouts for larger firms may change from a standard office cubicle or open-plan format to a variety of meeting spaces and better eating offerings.115 Locations may change as well, as organizations may require different types of spaces—possibly more space per person depending on health guidelines—and quality of space, including furniture, quality of materials, and quality of location to house “event-based work,” such as company events that help to foster corporate culture.116
White-collar employees are more likely to be able to work outside of their traditional place of employment, the office. This occupational category makes up around a quarter of the total U.S. workforce, as shown in Table 3. Based on 2020 U.S. Bureau of Labor Statistics data, around 26 percent of 147.8M U.S. employees could be classified as “white-collar.” These are occupations where the primary work can be done with a computer and a phone and therefore outside of an office.117 Around 23 percent of the labor force could be classified as “blue-collar,” where most of the work involves production needing to be carried out in a factory, warehouse, farm, or construction site. The remaining 52 percent of the workforce could be considered “white-coat” employees, service occupations that primarily require being present in a school, hospital, laboratory, theater, stadium, or other purpose-built facility.118 Many white-coat employees use computers and communicate by phone; during the Pandemic, a portion of them (e.g., teachers) worked at home. However, most of these occupations are poor telecommuting candidates. This is likely to be the case for some blue-collar employees as well.
| Labor Category | Percent of Workforce |
|---|---|
| White Collar | 26% |
| Blue Collar | 23% |
| White Coat | 52% |
This analysis suggests that a good portion of U.S. employees could work from home in the future. Pre-pandemic, approximately 17 percent of all U.S. employees worked at home, while at the one-year mark of the Pandemic, as much as 60 percent of the workforce worked at home.120 This is very dependent on the type of business organization, culture, and short- and long-term needs. Furthermore, health guidelines could require greater social distancing in offices, thereby increasing per-employee space demands even if the overall number of employees in an office declines. Nevertheless, if two-thirds of white-collar employees worked out of the office, 20 percent of white-coat employees and 5 percent of blue-collar employees did the same, this could increase the number of telecommuters to over 30 percent, a major impact on where the workforce spends much of its day.
The decrease in office use and leasing has had, and may continue to have, a negative impact on other businesses, including food/beverage and retail. Many businesses located in central business districts have lost their “lunch” and “business meal” market. Unless they find alternative ways to stay afloat, such as by reducing capacity, cutting staff and/or by offering delivery services, their existence is threatened. The same is the case for non-food retail, which is heavily dependent on office employees and visitors. This real estate sector has also been heavily buffeted by online shopping, a pre-pandemic threat that has only grown during the Pandemic. This business activity loss directly affects business improvement districts (a value capture technique), which often help maintain and invest in small infrastructure projects.121
The widespread adoption of video-conferencing will likely reduce business travel, to the detriment of hotels and related real estate. The video-conferencing market—which includes the application of common software like Zoom and Microsoft Teams—is expected to grow at a vigorous 11.4-percent compound annual growth rate from 2021 to 2028.122 Widespread acceptance of these tools will likely result in reduced business travel. This could affect business hotels, convention centers, and restaurants.123 Other business travel beneficiaries, including entertainment venues such as theaters, stadia, and museums could also be affected. Some analysts have predicted that as much as 20 percent of urban hotel rooms could be permanently closed.124 Business travel by car could also decline. One manifestation of hotels’ needs to transform themselves include renting out rooms as temporary offices during the day.125These hospitality real estate declines may impact the collection of value capture revenues that are dependent on business districts, tax increments, and/or hotel taxes. Furthermore, demand for transportation services around cities and to train stations and airports could also decline.
For several reasons, the real estate that has been the least affected by the Pandemic is residential real estate. First, a large proportion of the white-collar labor market was able to work from home, thereby allowing these employees to retain jobs and pay rent or mortgages. Second, some residents of cities heavily affected by the Pandemic (e.g., New York City) moved to suburban or exurban locations, increasing demand for single-family or second homes. This demand was exacerbated by college students and young adults who left dormitory or apartment housing to be with their families, thereby adding additional space needs for households in which one or more adults were now working from home. Finally, the Federal Reserve Bank’s monetary policy of keeping interest rates low has made home purchasing more affordable.
Increased telecommuting may put new pressures on residential design and space allocation. Beyond the fiscal policy impacts on housing demand, the Pandemic may increase the demand for space in the typical housing unit. With one or more household members working at home, the demand for “Zoom rooms”—quiet, video-conference-friendly rooms and/or dedicated home office spaces—has increased. In one example, a new 2,600-square-foot “concept home” in North Carolina includes two dedicated home office spaces and several multi-purpose flex spaces that can change over time as needs and household members change.126
While home-based locations may benefit the most from increased telecommuting, hybrid workplaces may also encourage the growth of “third” locations and unique, sought-after locations. The Pandemic has raised employees’ concerns about working in crowded and confined spaces, making work at home attractive. However, demand for working in “third” locations also may increase. Weather-permitting, outdoor cafes or parks are one destination. Others include sought-after locations, such as waterfronts or historic buildings. The New York Times reports a trend towards co-working spaces located in suburban areas to attract hybrid employees who do not want to work at home and/or whose employers offer this as a perk.127 As discussed, some employers may want to hold training sessions, meetings, and entertainment activities at these venues, thereby increasing the demand for rentals or long-term leases at choice spots.Â
Changing patterns of real estate demand within metropolitan regions may affect real estate growth. As outlined above, as a result of the Pandemic, many employees, especially white-collar ones, have chosen to work from home, at least partially. Collectively, these this may change demand for commercial office space. This may force downtown business districts, which are currently dominated by office space, to adapt. This may mean that the mix of real estate assets prevalent in urban cores will shift from commercial office space to retail, residential, and cultural uses.128 Further, the Pandemic has currently shifted residential demand from urban cores to suburban areas. This shift was driven by the ability to work from home, which has led employees to look for more space to accommodate their new work-from-home lives and reduce the need for residential neighborhoods with reasonable commutes. Pandemic-related shutdowns also reduced the value placed on urban cultural amenities; however, it is expected that the desire for such amenities will rebound once the Pandemic is under control.129
How economic shocks affect real estate growth patterns depends on the nature of the shock and are hard to predict. Arguably, a key reason the Pandemic led to a flight from dense urban cores to areas with more space had to do with the public health consequences of being in close proximity to others while a deadly virus was circulating. This, combined with the newly earned ability to work remotely, made the decision easy for some employees. While this movement out of the cities was previously a trend in the early 2000s, the economic shock posed by the GFC of 2008-2009 had the opposite impact. During this recession, people moved less and stayed in or moved to urban cores—the areas where the economic opportunity was greatest.130
103Cushman & Wakefield, “Predicting the Return to the Office,” September 2021, https://www.cushmanwakefield.com/en/insights/Predicting-the-Return-to-the-Office, p. 10 and 16.
104Bloom, Nicholas James Liang, John Roberts, Zhichun Jenny Ying, “Does Working From Home Work? Evidence From A Chinese Experiment,” The Quarterly Journal of Economics (2015), 165–218. doi:10.1093/qje/qju032, https://nbloom.people.stanford.edu/sites/g/files/sbiybj4746/f/wfh.pdf
105Barrero, Jose Maria “The Work-From-Home Outlook in 2022 and Beyond,” Work From Home Research, January 2022, https://wfhresearch.com/wp-content/uploads/2022/01/Barrero-AEA-NABE-Jan22.pdf, P. 28.
106Shea, Christopher, “No commute, Less Water Cooler Talk, More Exercise, Maximum Productivity,” The Washington Post, October 14, 2021, https://www.washingtonpost.com/outlook/the-great-pandemic-work-from-home-experiment-was-a-remarkable-success/2021/10/14/c21123d0-2c64-11ec-985d-3150f7e106b2_story.html
107Apollo Technical, “Surprising Working From Home Productivity Statistics (2021),“ June 2, 2021, https://www.apollotechnical.com/working-from-home-productivity-statistics/. Rebecca Stopoli, “Are We Really More Productive Working From Home?” Chicago Booth Review, August 18, 2021, https://review.chicagobooth.edu/economics/2021/article/are-we-really-more-productive-working-home
108CBRE, “The Next Normal: How Hybrid Work Will Transform Real Estate,” 2021, https://www.cbre.com/insights/reports/the-next-normal-how-hybrid-work-will-transform-commercial-real-estate p. 9; Aaron Short, “Majority of Employees Want Flexibility to Work From Home Instead of Raises,” Commercial Observer, October 13, 2021, https://commercialobserver.com/2021/10/majority-of-employees-want-flexibility-to-work-from-home-instead-of-raises/. Slack, “Report: Remote work in the age of Covid-19,” April 21, 2020, https://slack.com/blog/collaboration/report-remote-work-during-coronavirus
109Lawler, Richard, “Google pushes its mandatory return to office date into 2022,” The Verge, August 31, 2021, https://www.theverge.com/2021/8/31/22650639/google-mandatory-return-january-2022-remote-work. “
Grocery Dive, “Facebook Remote Working Plan Extended to All Staff for Long Term,” August 17, 2021, https://www.grocerydive.com/press-release/20210817-facebook-remote-working-plan-extended-to-all-staff-for-long-term/.
1110Shea, “No Commute.”
111Grant Thornton, “Grant Thornton Survey: Employees value flexibility over salary increases — one-third looking for new jobs,” October 6, 2021, https://www.grantthornton.com/library/press-releases/2021/october/gt-survey-employees-value-flexibility-over-salary-increases-one-third-looking-for-new-jobs.aspx.
112Grant Thornton, pp. 1-2.
113Joanne Lipman, “The Pandemic Revealed How Much We Hate Our Jobs. Now We Have a Chance to Reinvent Work,” Time, May 27, 2021, https://time.com/6051955/work-after-covid-19/
114CBRE, pp. 17, 21, and 28.
115Propmodo,“Landlord’s Guide to Remote Space Strategies,” September 15, 2021, https://www.propmodo.com/landlords-guide-to-remote-workplace-strategies/
116 CBRE, pp. 13, 25, and 29.
117U.S. Bureau of Labor Statistics, “Labor Force Statistics from the Current Population Survey, Household Data Annual Averages, 11. Employed persons by detailed occupation, sex, race, and Hispanic or Latino ethnicity,” 2020, https://www.bls.gov/cps/cpsaat11.htm. White collar includes “management, business, and financial operations occupations.” Blue collar includes “natural resources, construction, and maintenance occupations.” Pink collar includes “life, physical, and social science occupations;” “community and social service occupations;” “education, training, and library occupations;” “arts, design, entertainment, sports, and media occupations” with some exceptions; “healthcare practitioners and technical occupations;” “protective service occupations;” and “sales occupations.”
118This includes occupations covered by the outdated term “pink collar,” which originally referred to occupations that were dominated by women. Numbers do not add to 100% due to rounding. See: Robert Howells, “Why Do We Classify Jobs by Collar Color?” June 22, 2021, https://historyofyesterday.com/why-do-we-classify-jobs-by-collar-color-895dfab122d1. Amy Tennery, “The Term “Pink Collar” Is Silly And Outdated — Let’s Retire It,” Time,
May 23, 2012, https://business.time.com/2012/05/23/the-term-pink-collar-is-silly-and-outdated-lets-retire-it/
119U.S. Bureau of Labor Statistics, “Labor Force Statistics from the Current Population Survey.”
120Barrero, Jose Maria, Nicholas Bloom, and Steven J. Davis, 2021, “Why working from home will stick,” National Bureau of Economic Research Working Paper 28731, www.wfhresearch.com, p. 4.
121Emily Davies, “Less than 25 percent of office workers have returned to downtown D.C., new report says,” The Washington Post, October 8, 2021, https://www.washingtonpost.com/dc-md-va/2021/10/08/less-than-25-percent-office-workers-have-returned-downtown-dc-new-report-says/
122Grand View Research, “Video Conferencing Market Size, Share & Trends Analysis Report By Component (Hardware, Software, Service), By Deployment, By Enterprise Size, By Application, By End Use, By Region, And Segment Forecasts, 2021 – 2028,” https://www.grandviewresearch.com/industry-analysis/video-conferencing-market.
123Robin Pomeroy and Ross Chainey, “Has COVID killed our cities?” World Economic Forum, November 12, 2020, https://www.weforum.org/agenda/2020/11/cities-podcast-new-york-dead/.
124Elise Schoening and Michael J. Shapiro, “The Latest on Hotel Reopenings and Closings Due to Covid-19,” April 5, 2021, https://www.northstarmeetingsgroup.com/News/Hotels-and-Resorts/Coronavirus-Update-Hotel-Resort-Casinos-Closed-Economic-Impact
125Nabila Ismail, Caroline Lupini, “Hotels Are Staying In Business By Turning Rooms Into Offices,” Forbes, March 12, 2021, https://www.forbes.com/advisor/travel-rewards/hotels-are-staying-in-business-by-turning-rooms-into-offices/
126Businesswire, “Grand Opening of America at Home Study Concept Home “Barnaby” Reflects National Homebuyer Preferences in the Wake of COVID-19,” July 14, 2021, https://www.businesswire.com/news/home/20210714005191/en/Grand-Opening-of-America-at-Home-Study-Concept-Home-“Barnaby”-Reflects-National-Homebuyer-Preferences-in-the-Wake-of-COVID-19
127Nicole Hong and Matthew Haag, “Why Co-Working Spaces Are Betting on the Suburbs,” New York Times, Oct 28, 2021, https://www.nytimes.com/2021/10/28/nyregion/co-working-space-suburbs.html
128Hadden Loh, Tracy and Kim, Joanne. To Recover from COVID-19 Downtowns Must Adapt Brookings. April 15, 2021, https://www.brookings.edu/research/to-recover-from-covid-19-downtowns-must-adapt/
129Assani, Laila and Su, Yichen. COVID-19 Fuels Sudden, Surging Demand for Suburban Housing. Federal Reserve Bank of Dallas, 2020.https://www.dallasfed.org/research/swe/2020/swe2004/swe2004b.aspx
130Frey, William. The Great American Migration Slowdown: Regional and Metropolitan Dimensions. Brookings. December 2009, https://www.brookings.edu/wp-content/uploads/2016/06/1209_migration_frey.pdf.
