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  • Writer's pictureRealFacts Editorial Team

Hybrid Work and Urban Migration: Effects on Real Estate and City Finances

Home office

The COVID-19 pandemic abruptly stopped and even reversed migration patterns to urban areas, especially within cities. During more recent years, migration patterns have returned to more normal patterns but strong urban growth remains uncertain. Although urban outflow has not reversed, the declines lessened in 2022 and 2023 as the pandemic restrictions were lessened and remote work gave way to a hybrid mix of in-office and remote working opportunities.

According to CBREs Fall 2023 Occupier Survey, 92% of companies believe that office attendance is necessary, on average, they expect their people to be in about three days per week. The decrease in office attendance has reduced foot traffic in bigger cities which has led to extremely high office vacancy rates. Due to increased work flexibility, many employees are moving out of the big cities to find larger but cheaper property. Suburban areas are benefiting greatly from this pattern of movement from city to suburb.

Commercial real estate has been largely affected by hybrid work and changing residential preferences, especially in larger cities which were hit the hardest by moving patterns and the transition to remote work. The apartment market was the first impacted with vacancy rates spiking in 2020 due to COVID-19. Vacancy rates eventually returned to pre-pandemic levels once urban amenities opened up again.

The downtown office vacancy rate increased rapidly, surpassing the suburban vacancy rate in 2022 for the first time since the late 1990s. Performance differed significantly based on the age and quality of buildings, as numerous tenants sought higher quality spaces. A CBRE Econometric Advisors (EA) study of 16 downtown markets revealed that the EA Asking Rent Index for prime buildings—newer constructions with extensive amenities and wellness features—rose by 11% from pre-pandemic levels through Q1 2024, whereas non-prime buildings experienced a 4% decline.

Declining values of downtown office buildings and retail dependent on office workers are impacting municipal budgets, as these properties contribute significantly to tax revenue. In New York, office sector property taxes surpass those of all other property types, despite lower aggregate market values. Variations in tax assessment methods mean the impact differs across cities, but ongoing changes in commercial real estate values due to evolving work patterns pose a widespread risk to municipal revenues. Cities must quickly identify optimal uses for downtown buildings and land, potentially redefining their urban landscapes.


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