The shift towards remote work instigated by the pandemic profoundly altered household decision-making and housing market dynamics. Often, this translated into families and individuals moving to suburbs or smaller markets, leaving many large cities diminished.

Traditional economic powerhouses like Washington, D.C., New York, and San Francisco experienced significant population and employment losses, at least for a time, while lively, newer communities received a major push forward, including Boise, ID; Austin, TX; and a series of smaller communities in Florida’s panhandle. 

At the heart of these dynamics was a combination of remote work and a search for affordability. As inflation took off in early-2021, households frantically sought opportunities to bring cost increases in line. One way to do that is to move from a very expensive city like San Francisco to a somewhat less expensive one like Sacramento. Or one might be tempted to move from Washington, D.C.’s very expensive suburbs closer to Richmond, VA.

Remote and hybrid work arrangements empowered such decision-making. Workers could have the best of both worlds — they could make large city dollars while suffering only small city expenses.

But now a partial reversal may be underway. The federal government, large banks, and others are insisting that workers come back to the office five days a week. Often, CEOs emphasize corporate culture, data security, productivity, and other considerations to justify their insistence.

Corporate leaders and influencers like JPMorgan Chase’s Jamie Dimon have reinforced the necessity of in-person work, with Dimon declaring that remote work “doesn’t work for young people” and “doesn’t work for spontaneous idea generation.” Likewise, a list of companies including Google, Meta, and Goldman Sachs have imposed stricter return-to-office requirements.

As employees return to urban centers and pre-pandemic commuting patterns, residential market performance stands to be impacted. 

It is possible, however, to overstate the impact of return to work mandates. According to data from the U.S. Bureau of Labor Statistics, in 2023, 35% of U.S. employees conducted some or all of their work from home. That’s considerably higher than the 24% registered in 2019, though down from the pinnacle of 42% in 2020 when COVID-19 raged and social distancing requirements often prevailed.

The Federal Mandate & Corporate Shift

The federal government’s return-to-office directive affects approximately 2.1 million employees nationwide, with more than 300,000 concentrated in the Washington, D.C. metropolitan area. Agencies like the U.S. Department of Defense, IRS, and the Social Security Administration will drive substantial workforce transition, but the overall impact is ambiguous.

Amid the return-to-work imperatives are a series of high-profile downsizings. So, while return to work might add to demand for housing in large cities with substantial federal presence, layoffs may serve to diminish the overall level of demand for homes. Indeed, there has been a considerable amount of chatter regarding a collapse of the Washington, D.C. area housing market, but to date, much of that discussion is overdone.

The private sector is experiencing a similar transformation. Goldman Sachs has entirely eliminated its hybrid policy. Tech giants have also tightened policies, requiring multiple in-office days each week.

This trend extends beyond finance and tech into law, consulting, and media organizations. As more companies require their employees to return to office, this will restore demand for housing in larger, often more expensive metropolitan areas.

Recent data confirms the shift back toward urban living. Washington, D.C. has seen rental demand increase by 12% year-over-year. In New York City, Manhattan’s rental market has exceeded pre-pandemic levels, with average rents surpassing $4,000 per month.

This tightening of urban rental inventory is fueling a new wave of residential construction. Developers who pivoted to suburban single-family homes are now refocusing on multifamily and high-density developments in city centers. As such, urban resurgence creates several opportunities for construction stakeholders.

Multifamily & Mixed-Use Development

With rental demand rising, developers are accelerating construction of new apartment complexes near employment hubs. Both luxury and mid-tier properties are experiencing heightened interest as workers seek modern amenities and convenient commutes. Co-living spaces and micro-apartments are gaining popularity, catering to professionals who prioritize location over square footage.

A backdrop to these patterns is elevated construction delivery costs, high interest rates, and lingering inflationary pressures. But people need a place to live. The broader context is driving people into smaller, urban residential units.

Unsurprisingly, in Washington, D.C., the trend of converting office spaces into residential units is on the rise, with 73 such conversions completed by November 2024 and an additional 30 projected by the end of the year.

Notable projects include the transformation of the historic U.S. Department of Agriculture Cotton Annex into the Annex on 12th, a 562-unit luxury apartment complex near the National Mall. Additionally, co-living developments like the Clover at the Parks, a 248-unit project, have opened as part of the Walter Reed site redevelopment, highlighting the growing popularity of communal living arrangements among professionals.

With office vacancy rates approaching 20% nationally, adaptive reuse projects are gaining traction, even during a period of elevated borrowing and construction delivery costs. These conversions now account for 40% of all planned adaptive reuse projects, with more than 20 million square feet of office space slated for residential conversion in 2024 alone.

Success stories include Park + Ford in Alexandria, VA, where two 14-story office towers were transformed into 435 modern apartments. In Chicago’s LaSalle Street corridor, multiple vacant office buildings are being redeveloped as affordable and market-rate housing with city-backed incentives. These projects address housing shortages while revitalizing downtown areas affected by lingering remote work vacancies.

Transit-Oriented Development

As workers prioritize shorter commutes, demand for housing near transit hubs has expanded. Cities are encouraging transit-oriented developments (TODs) by integrating residential units with retail and office space, reducing parking requirements, and promoting pedestrian friendly development.

Examples include The Loop at Mattapan Station in Boston, MA, a 135-unit affordable housing development built on a former transit parking lot, and Ivy Station in Los Angeles, CA, which combines apartments, offices, retail, and direct Metro access. For developers and contractors, TODs offer stable demand, public-private investment opportunities, and sustainable growth frameworks.

Many cities are also adjusting local regulations to encourage urban residential development. Some of these examples include:

• San Francisco, Minneapolis, and Seattle streamlining the approval processes for office-to-residential conversions;
• California’s AB 2011 and SB 6 simplifying building multifamily housing on commercial land; and
• New York City exploring new tax incentives for rental development.

Looking Ahead

While there will likely be some ongoing return-to-work requirements, remote work will remain pervasive in America.

At the heart of this contention is data that indicates that productivity has not suffered as remote work has lingered. Undoubtedly, there are skeptics, but recent research from the U.S. Bureau of Labor Statistics’ Beyond the Numbers indicates that there is “a positive relationship between total factor productivity and remote work.” To be more specific, a “1 percentage-point increase in the percentage of remote workers is associated with a 0.1 percentage-points decrease in growth in unit labor costs.”

Nonetheless, some of our pre-pandemic life is being reconstituted. In general, that is good news for large U.S. cities that have struggled with stagnant population growth and large-scale commercial vacancy rates since COVID-19 altered existence.