Office-occupancy growth is
constrained in the work-from-home era
Office-occupancy growth throughout the last eight years has not kept pace with office-employment growth.
Office-occupancy growth per added office job is expected to top 70 square feet this year, the highest figure in
some 10 years. Still, that is well below the average growth of 165 square feet in 2000 and the 182-square-foot
mark in 2007, just prior to the last recession. [See chart.]
We have heard this story before. The
lower absorption trend over the last
eight years has been attributed to two
causes: the concentration, or “
densification,” of workers in tighter spaces,
as well as the increase in the trend of
working from home.
Although it is somewhat easy to quantify the density of workers, few have
looked at the trend in working from
home. The U.S. Census Bureau, however, has been tracking this in their
American Community Survey and the
results are striking.
In 2017, 5.2 percent of the working
population — close to 8 million working Americans — reported that they
worked from home. This is up from
4. 3 percent of the working population
— 5. 9 million people — in 2010, a net
difference of 2.1 million more people
that worked from home in 2017 versus 2010. It’s easy to see why office leasing has trailed in this expansion.
A more striking finding in the census data is how metro areas ranked, not only in the ratio of employees that
work from home, but the change in this ratio.
It should come as no surprise that most of the metros that have a high proportion of people working from home
also have seen some the of the strongest rent growth over the last few years.
The top-five metros in terms of the ratio of employees who work from home as of 2017 not only have seen
higher rent growth than most metros, but they have had the highest office-employment growth over the last
few years. This suggests that the fastest-growing employers have encouraged staff to work from home, either
to save on office-rent costs and/or because they have grown so rapidly that they have not had the space to
The top-five metros based on their work-from-home ratios in 2017 are the following: Austin, Texas, 9.2 percent;
Raleigh-Durham and Charlotte, North Carolina, 8. 8 percent and 8.1 percent, respectively; Denver, 8 percent; and
Portland, Oregon, 7. 9 percent.
Likewise, metros with the lowest ratios of people who work from home, not surprisingly, have had slow job
growth and very little rent growth. They also have excess capacity: The average office-vacancy rate for these
bottom-five metros is 19. 6 percent. They include the following, ranked highest to lowest in terms of their 2017
work-from-home ratios: Oklahoma City and Norfolk/Hampton Roads, Virginia (tied); Dayton, Ohio; Buffalo,
New York; and Wichita, Kansas.
Perhaps what is even more surprising in the numbers is the metros that did not make the top five or even top
10 in terms of their work-from-home ratios — bigger, more expensive cities like New York, San Francisco and
Los Angeles. The work-from-home ratios for these cities as of 2017 was as follows: 4. 3 percent, 6. 8 percent and
5. 6 percent, respectively.
Yet, each of these and other big cities have lower vacancy rates, higher rents and healthy office-employment
growth. What accounts for the big difference?
Perhaps it has to do with the access to public transportation, the smaller living quarters in bigger cities and the
value placed on face time or being in the office. The data shows that the work-from-home ratio is increasing
in 95 percent of the metros studied. Clearly, this question warrants deeper research that is worth pursuing. n
By Victor Calanog and Barbara Byrne Denham
Barbara Byrne Denham is an economist in the research and economics
department at Reis Inc. She previously
served as chief economist at Eastern
Consolidated and is a Ph. D. candidate
at New York University, where she
has studied economics, monetary
theory and game theory. Reach her
Victor Calanog is chief economist
and senior vice president for research
at Reis Inc. ( www.reis.com). He writes
a monthly column on property types
for Scotsman Guide. Calanog and his
team of economists are responsible
for data models, forecasting, valuation
and portfolio services for clients in
commercial real estate. Reach him
Source: Reis Inc. and U.S. Bureau of Labor Statistics
*Analysis covers the top 82 U. S. metro areas.
Vacancy rate Office-occupancy growth (in square feet)
per added office job
U.S. Office-Occupancy Growth*