Work From Home Has Hit Office Real Estate The Hardest In These 5 US Cities

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Zinger Key Points
  • Commercial real estate, especially office buildings, have struggled since the COVID-19 pandemic as workers moved to remote work.
  • Office vacancy is high in San Francisco and relatively low in cities such as Miami.

The COVID-19 pandemic accelerated a trend of workers preferring remote work to in-person office attendance.

Meanwhile, commercial real estate across the U.S. has suffered as companies do not value expansive office spaces as they did before.

The Data: A post on X relayed data from Arbor Data Science.

The following U.S. metropolitan areas have the highest office vacancy rates.
  • San Francisco, California — 25.4%
  • Houston, Texas — 23.8%
  • Seattle, Washington — 23.2%
  • Austin, Texas — 22.9%
  • Denver, Colorado — 22.1%

San Francisco’s Bay Area, which includes Silicon Valley, is the heart of technology companies in the U.S. A 25.4% vacancy rate is much higher than its 9.3% median vacancy rate from 1997 to 2013 (as found in a 2014 Journal of Real Estate Portfolio Management article).

Meanwhile, the bottom five cities have weathered the storm comparatively well.

  • Miami, Florida — 12%
  • Boston, Massachusetts — 12.8%
  • Tampa, Florida — 13.3%
  • Charlotte, North Carolina — 14.9%
  • Philadelphia, Pennsylvania — 15.3%

The U.S. overall office space vacancy rate crossed 20% for the first time in 2024’s second quarter, according to Moody’s.

Market Implications: REITs with commercial real estate holdings have by and large struggled since the onset of the pandemic:

  • Alexandria Real Estate Equities Inc ARE is the largest office REIT by market cap. It owns properties in San Francisco and Boston, among other locations. Its share price is down over 18% in the past five years.
  • BXP Inc BXP, formerly Boston Properties, owns buildings in Boston, San Francisco and Seattle. Its share price is down 45% in the past five years.
  • Hudson Pacific Properties, Inc. HPP owns properties on the West Coast with exposure to San Francisco and Seattle. Its market capitalization is 83% less than it was five years ago.
  • Cousins Properties Inc CUZ owns properties in Austin, Charlotte and Tampa, among other locations. Cousins shares are trading nearly 20% lower now than five years ago.
  • Kilroy Realty Corporation KRC owns office buildings in San Francisco and Austin. Its share are trading over 50% lower than five years ago.

Several exchange-traded funds (ETFs) track the real estate industry with some exposure to office REITs, including:

  • The Vanguard Real Estate Index Fund ETF VNQ
  • The Schwab US REIT ETF SCHH
  • The Real Estate Select Sector SPDR Fund XLRE

These funds have fared better than the individual office REITs due to their diversification.

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