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What Will Happen To Commercial Real Estate As More People Work From Home?


People are going out less and working from home more because of the coronavirus pandemic. But what will happen to all the office buildings and retail space that depend on people leaving their homes and going to work? Stacey Vanek Smith and Cardiff Garcia from our daily economics podcast The Indicator From Planet Money look into what working from home could mean for commercial real estate.


CARDIFF GARCIA: Steve Rappaport has been in the commercial real estate business in Manhattan for 15 years. And he says it is not for the faint of heart.

STACEY VANEK SMITH: You have to hustle for everything.

STEVE RAPPAPORT: Yep, so no deals, no commission.

VANEK SMITH: And, of course, it's not just the real estate side of things that's competitive. I mean, New York is not an easy place for a business to thrive. It's very cutthroat. And Steve says business owners have to be really careful about the location and the space they choose because that is the kind of thing that could make or break a business.

RAPPAPORT: It has to be the right price, the right configuration, the right ceiling height.

GARCIA: Steve says in the world of commercial real estate, 500 square feet is generally the smallest space. That'd be like a tiny, little coffee shop with no tables. But that tiny space packs a big rent punch.

RAPPAPORT: In Times Square at Fifth Avenue, spaces could be 2,000 per square foot.

VANEK SMITH: That's like a million dollars a year.

RAPPAPORT: In those neighborhoods, yeah. And you don't find many 500-square-foot stores on Fifth Avenue.

VANEK SMITH: So it starts at a million dollars a year.


GARCIA: But those were the rents people were paying, and those rents had been going up for years and years. And then in March, they stopped. In fact, everything stopped.

VANEK SMITH: Here is the problem with real estate right now. This is not a typical recession because this recession has been accompanied by stay-at-home orders and a big cultural shift in the way that we work. And commercial real estate right now is getting it from all sides.

GARCIA: A lot of businesses have closed in the U.S., nearly 100,000 since March. All of those storefronts and offices are now empty.

VANEK SMITH: And even when people do start going back to work, chances are they'll be going in less often. And also, there probably won't be nearly as many people going back to the office.

MOE VELA: Everyone wins in a remote workforce model, so why would you not do it?

GARCIA: Moe Vela is a remote workplace consultant with a company called TransparentBusiness.

VANEK SMITH: Moe says he spends a lot of his days talking to, like, CEOs and heads of businesses and giving them his remote work sales pitch.

VELA: Let's start with employers. They save on the average of $11,000 per employee per year.

VANEK SMITH: Is that, like, rent and stuff?

VELA: Yeah, rents. Productivity goes up all the way as much as 40% in some cases. Employees - think about no stinky trains, no stuffed-up buses, no bumper-to-bumper traffic.

VANEK SMITH: And it seems like a lot of companies are jumping on this bandwagon. A recent survey of hundreds of CEOs found that nearly 70% of them were planning to permanently cut back on their office space.

GARCIA: Facebook, for example, has said that it expects about half of its workforce to work from home in the future - Twitter, Zappos and Slack all saying the same thing. And Pinterest just paid $90 million almost to get out of its lease at a big building in downtown San Francisco.

VANEK SMITH: So where does that leave Steve Rappaport and our million-dollar coffee shop? Steve says right now rent prices have dropped around 20%. But Steve says, you know, he has seen recessions and cultural shifts and workplace changes come and go. And what stayed the same? New York real estate is always a good bet.

Stacey Vanek Smith.

GARCIA: Cardiff Garcia, NPR News.