Is the work-from-home concept here to stay? Study of changes in rental income from commercial real estate firms.

Abstract

In March of 2020, the COVID-19 pandemic caused a sudden influx of employees working from home full-time. A study of 100,000 tweets in spring 2020 showed a 73% positive sentiment toward working from home (Dubey & Tripathi, 2020). In October 2020, Rutgers reported between 14 and 203 million Americans plan to relocate in response to the availability of work-from-home assignments. That might signal a shift in demand for companies connected to residential real estate; however, one industry is positioned to lose big if Americans don't return to office buildings: commercial real estate.
We analyzed the 2019 and 2020 quarterly financial statements of seven commercial real estate firms that specialize in renting office space and found evidence of changes in revenue and net property, plant, & equipment. Q2 2020 quickly showed an average decrease in rental income by more than 12% from Q1. The decrease suggests that while many companies are closing brick-and-mortar locations and workers anticipate a permanent work-from-home status, their landlords are not yet experiencing a significant change in their rental income or PPE. The average long-term lease for office space is around 3-5 years (Smith, 2021), so it may take years to see an impact as clients decide now to renew leases in the future and management completes existing projects.