One of the biggest changes the pandemic brought to the U.S. economy and the daily lives of Americans was the rise of work from home (WFH). Tens of millions of Americans stopped going to the office and instead performed their job functions from their home office, or kitchen table, or bedroom (or the beach). As the economy opens back up again, many of these workers are returning to the office.
How many workers return, and how quickly, will have major implications for office real estate markets over the next few years. I took a deep dive into survey data that the Bureau of Labor Statistics (BLS) has been gathering along with the traditional monthly employment report, and which provide detailed information on who has been teleworking because of the pandemic.
To preview the findings of my analysis, more than half of those who were working from home last year have returned to the office. Among the occupations and industries that are major tenants in office buildings, however, the return to the office has been slower. Recent announcements by a number of major employers suggest that the return to the office may accelerate only after September. It is too soon to tell, though, whether most or all workers will eventually return to the office, or whether WFH will remain permanently higher after the pandemic ends.
Nearly 50 million people worked from home in May 2020.
In May 2020, the first month that the BLS conducted the special survey, WFH surged to 48.7 million, or 37.4% of total employment. WFH fell steadily through the summer and early fall, but rose in November and December as the rate of new COVID-19 infections surged. WFH began declining again after vaccine distribution gained speed, and by June 2021, the total number of people working from home because of the pandemic had declined 54% relative to May 2020.
The ability to WFH varies widely according to occupation.
This may seem obvious, but it is interesting to see just how sharp the differences in WFH are across professions. In particular, the management, professional, and related occupations are heavily over-represented in WFH. These professions represent 42.2% of total employment, but account for 78.7% of total WFH. This should not be surprising, as these professions represent the stereotypical office job, whose functions can most easily be conducted by phone, email, or video teleconference. WFH in other occupations is underrepresented relative to employment, especially service workers, where face-to-face interactions are often an integral part of the job. Service workers accounted for just 2.1% of total WFH, even though service workers make up 16.2% of total employment.
From May 2020 to June 2021, WFH declined across all major occupational groups. The relative decline in WFH has been steepest in the service occupations, natural resources, and production, transportation and related, where WFH has declined more than 70% from May 2020. Among management and professional workers, in contrast, WFH is down 53% over this same period.
The BLS survey also reports WFH by industry, with results that are consistent with the occupational details discussed above. WFH has been highest in finance & insurance, information, and professional & business services. Among the finance sector, which leases a large share of office space in New York and other financial centers, 41.7% of workers were still telecommuting in June.
WFH is concentrated among higher-educated workers.
In May 2020, 68.9% of workers with an advanced degree and 53.5% of college graduates were telecommuting, compared to 15.3% of high school graduates and just 5.2% of those without a high school diploma. Among those with advanced degrees, 33.3% were still telecommuting in June 2021.
The return to office will boost office real estate markets.
It’s not uncommon for commercial real estate markets to lag the turning points in the overall macroeconomy. As I pointed out in my Midyear Economic Outlook, office vacancy rates continued to rise and rents continued to weaken for 12 to 14 quarters after the job market turned up following both the Dot.com boom and bust in 2001, and also following the Great Financial Crisis in 2008-2009. The job market recovery is already well underway, but this time there is the added factor of WFH. With many employers looking towards Labor Day as the start of a more earnest return to the office, it’s likely that office real estate markets will strengthen later this year and early next year.
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