How Telecommuting Could Affect Real Estate Values

More than 12 million people in the U.S. are telecommuters working from home (or Starbucks) for eight or more hours per week, according to Gartner Dataquest. That’s a …

More than 12 million people in the U.S. are telecommuters working from home (or Starbucks) for eight or more hours per week, according to Gartner Dataquest. That’s a 100 percent increase from the six million telecommuters in 2000.

Gartner projects that by 2009, more than 25 percent of U.S. employees will be telecommuters. This represents a dynamic shift in the daily location of millions of people.

Since we are always interested in looking at how demographic changes may shape the real estate market in the future, we’ve evaluated the possible effects of rapid growth in telecommuting on a number of different types of real estate.

Urban Real Estate

It is possible that telecommuting could have a negative effect on real estate values in the inner cities of major metropolitan areas. Real estate values are generally higher the closer the real estate is to the downtown area. Visually, this can be seen in the gradual rise in the heights of buildings and structures. One of the main drivers for real estate values in urban locales is the proximity to work locations, since downtown areas typically have a high density of office workers.

NuWire’s Take: Minimal Effect if Any

Those who choose to live in the inner city do so for the urban lifestyle’s culture, entertainment and social activities. Urban living is typically dominated by a younger demographic drawn to the city for reasons other than just being close to the office.

The Suburbs

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Telecommuting has the potential to affect the suburbs in both positive and negative ways. It’s reasonable to think that value differentials between inner city real estate and the suburbs, in large part, are representative of the commute factor. With that in mind, it would appear telecommuting could help close the gap between real estate prices in the city and on the outskirts. However, that doesn’t factor in how telecommuting could cause an exodus from the ‘burbs. If you could work from anywhere, would you still choose to live in the suburbs?

NuWire’s Take: Minimal Effect if Any

Judging telecommuting’s future effect on suburban markets is difficult. For one, it appears that most telecommuting is done part-time—one or two days per week, for example. This would still seem to leave enough commuting time to maintain the value gap between homes closer in to the city versus further out. Second, even if commuting becomes less of a factor in real estate prices, there will still be favored communities because of the desirability of specific neighborhoods and access to amenities. In other words, not all suburbs are equal. Ultimately, we think that face-to-face office collaboration will still be frequent enough to keep the effects of telecommuting to a minimum, but perhaps an expanded office or built-in bookcase could add a few more dollars to the value of your home.

Winter Bird Properties

The baby boomer’s dream: spend the winters in a sunny location and the summers at home near the grandkids. This scenario, combined with increased telecommuting, could dramatically expand the market for winter bird properties. The U.S. population is aging: 24 percent of the workforce—38 million people—will be over the age of 55 by 2017, according to the Bureau of Labor Statistics. Only 36 percent of adults aged 41 to 54 expect to retire on time, according to a 2005 Harris Interactive study, because of a lack of savings and extended life expectancies. Telecommuting would seem like an ideal way for many baby boomers to continue to work but achieve some form of a retirement lifestyle.

NuWire’s Take: Moderate Effect

We think that the winter bird phenomenon is more than just an aberration; it’s a trend. Unfortunately, we’re not so sure there is a real investor advantage in getting into these markets right now. The five most overbuilt markets in the U.S. include two cities in the desert and three in Florida. It looks like winter bird markets are already receiving plenty of attention.

Foreign Real Estate

Could telecommuting affect the prices of foreign real estate? In many locations close to the U.S., the answer is probably yes. For those who telecommute full-time, living in a sunny location such as the Caribbean or Mexico may be appealing. Although the number of full-time telecommuters is small, it does not take a great deal of expatriates in foreign countries (relative to the size of the U.S. market) to create significant demand for foreign real estate.

NuWire’s Take: Moderate Effect

If you could work anywhere in the world, where would it be? For many, the answer is likely somewhere outside the U.S. In 2006 more than one million foreign properties were purchased by U.S. residents, according to the National Association of Realtors (NAR). However, with regard to telecommuting, the effect should be moderate at best. Although the Internet has opened up numerous opportunities for self-employment, the telecommuting trend still greatly favors part-time telecommuting, which would be inconvenient from most foreign locations, to say the least.

Commercial Real Estate

Commercial real estate has seen several favorable years, even despite the credit problems in the U.S. real estate industry. Backed by record profits, businesses have continued to expand and require additional office space. Businesses, especially publicly-traded ones, are designed to make a profit, which often requires cost-cutting measures. Telecommuting offers businesses the ability to improve employee morale, limit office politics and cut monthly overhead expenses. Does that sound like a trend businesses might continue to encourage?

NuWire’s Take: Moderate to Massive Effect

As technology improves, it makes sense that many, if not most, businesses will elect to have a greater number of employees work from home. That could mean slightly reduced demand for commercial space or it could mean significantly reduced demand. Even if employees come into the office two days a week, floating work stations could cut the required office space in half. The only question is how quickly companies can develop an infrastructure for measuring results versus effort (what an employee accomplishes versus how many hours an employee works).

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