A recent headline on Bloomberg read, “Employees are quitting instead of giving up working from home.”
The article, which highlighted a handful of white-collar Americans who walked away from their jobs when their employers required them to return to the office, supports the notion that work from home (WFH) might be here to stay, at lease for some employees.
A recent Harris Poll found that 40 percent of Americans prefer to work from home full time and another 35 percent are seeking a hybrid of WFH and office days. Only one in four respondents wanted to go back to the office full time.
Most of the WFH discussion, as it relates to real estate, has focused on its impact on the office sector and decreased demand for office space. While “death of the office” conversations are no doubt overexaggerated, they also ignore another property sector that has been impacted by WFH: multifamily.
Renters, even those who work from home only part time, are re-evaluating where they want to live, how much space they need and the amenities they require. And multifamily owners and investors are re-evaluating too, taking shifting renter preferences into account and positioning their properties to accommodate WFH.
“WFH or work-from-anywhere was a trend that we noticed pre-pandemic,” says Michael H. Zaransky, managing principal of MZ Capital Partners, a Northbrook, Ill.-based multifamily owner and developer. “The pandemic acted as an accelerator.”
Hot markets
Early in the pandemic there was a lot of buzz about WFH and people moving out of urban areas and into suburbs, or moving from larger cities to smaller cities in other states. Faced with outbreaks, layoffs and shutdowns, city residents began paying more attention to costs and density to facilitate social distancing.
“Extended WFH policies, especially for workers with no return to office in sight, have driven many from larger gateway markets (New York City, Los Angeles, San Francisco) to smaller, secondary cities (Austin, Denver, Phoenix, Raleigh) where the cost of living is lower and the overall quality of life is higher,” says Matthew Gorelik, CEO of Township Capital, a Los Angeles-based real estate investment manager. (Although this is a trend that might have been a natural extension of millennials already planning to move as they started their own families and was accelerated, rather than sparked, by the pandemic, according to some industry sources).
For the moment, investors are following residents. Gorelik has seen a shift in investor focus toward secondary and tertiary markets, particularly in Sunbelt states “where laws are more favorable to landlords and COVID restrictions have been less severe on day-to-day life.”
But it’s impossible to know how long this migration trend will last or how permanent the relocations will be.
“It is unclear if the transplants will like the slower pace of tier-two cities,” says Brian Zrimsek, industry principal with real estate technology firm MRI Software. “Maybe they stick; maybe it will be more like the old sitcom ‘Green Acres’—New York is where I’d rather be!”
Growing demand at suburban properties
With thirty-two percent of adults still working from home full time and another 21 percent commuting to the office occasionally, according to the Harris Poll, renters are looking for communities that offer a location that can accommodate their new lifestyle and help them be successful outside of an office.
“The greatest impact that we’ve seen so far is a shift in consumer preference towards more suburban product,” Gorelik says.
Part of the appeal of suburban properties is financial—these units typically cost less on a per square foot basis,—but of equal importance is the surrounding environment. Apartments close to parks and greenbelts, where residents can get out of their apartments and enjoy some nature and fresh air, are particularly desirable.
“I do think we are going to see is an increased demand for garden-style product where consumers have the kinds of amenities that are more akin to those of a single-family property (more space for kids and pets),” Gorelik points out. “They serve as a great intermediary product for young families who need a little more space and still want easy access to the city, but aren’t yet in the market for home ownership.”
Larger floorplans, more bedrooms
Certain floorplans are more appealing for people who work from home, according to experts. They want more space because they’re spending more time at home, and as a result, they’re seeking floorplans with a dedicated study or den area for a desk.
Some renters may have had this space at the onset of the pandemic; others didn’t. Things often get complicated if two people are forced to work from home in the same space. “One- and two-bedroom units fell out of favor toward the start of the pandemic, but once things settled a bit, they regained their popularity,” Zrimsek says. “This could indicate folks trading up for more space for work from home. Very attractive pricing, relative to pre-pandemic levels, also contributes, as folks can get more for their money. They also could be doubling up to lower individual costs.”
Two-bedroom, one-bath units are leasing up quickly, according to Albert Lord, founder and CEO of Lexerd Capital Management. The Summit, N.J.-based real estate firm primarily sponsors investments in opportunistic multifamily properties and has managed over $1 billion in assets since its founding.
“In the past, a single bathroom was a problem for some with roommates or children,” Lord notes. “Now, the second bedroom is seen as a place of work for singles or a couple. WFH renters no longer need to pay for a second un-used bathroom.”
Zrimsek expects renters that have certainty about work from home to look for more space, for example, by moving from studio to a one-bedroom or from a one-bedroom to a two-bedroom. However, he does acknowledge the limitations of an 800-sq.-ft. unit to address all WFH needs.
That’s why many architects and owners are evaluating units that include home office space, such as small workstations and Zoom rooms. In fact, Lord predicts that a 200-sq.-ft. living room area of the past will likely become a 150-sq.-ft. gathering space and a 50-sq.-ft. WFH space, partially or fully separated from the other spaces.
Owners are also touting outdoor space as a perk for those who work from home. Renters covet apartment balconies that are large enough for a café table so they can work outside or take a break from their laptops. Likewise, outdoor entertaining areas such as patios, firepits or pergolas are appealing for a change of scenery.
WFH amenities
Renters still want community amenities such as fitness centers and pools, but other amenities such as movie theaters, tanning beds and wine tasting rooms are far less appealing for WFH residents. Instead, they’re seeking affordable access to high-speed Internet and working space outside of their units.
Because office workers are used to (some would say spoiled) by fast and reliable Internet access, their homes must offer the same. And they’re not satisfied with only having Internet access in their units; they want it while they lounge beside the pool, hang out in the clubhouse and relax on bench in the dog park.
And now that large global companies might be shifting their office occupier strategy to incorporate flexible co-working space because their employees want it, many multifamily owners are doing the same thing. Instead of a movie theater or game room, owners repurposing amenity space to accommodate co-working and residents who work from home.
These on-property workspaces serve as a compromise between a desk in the corner of the bedroom and an outside office. Multifamily experts expect that these types of spaces will have greater appeal than general meeting/party spaces. Some are planning to monetize the spaces instead of offering them as a free amenity by requiring reservations and equipping them with the latest technology and even higher speed internet.
“Highest speed Internet connections, co-working spaces in the common areas and private work-from-home suites are in high demand and new must-have amenities,” Zaransky says.
