Before the coronavirus pandemic erupted, remote work was more of an anomaly than the norm. But over the past 16 months, millions of Americans have been doing their jobs from home instead of reporting to office buildings. And while some companies are finally starting to call workers back to offices, others are allowing employees to do their jobs remotely on a long-term basis.
That's not the best news for real estate investors with office REITs (real estate investment trusts) in their portfolios. Office REITs took a beating over the past year, and for the sector to recover, people need to return to buildings at pre-pandemic levels, or at least someplace close.
But while remote work may seem like a great arrangement for employees -- after all, they get a world of flexibility to enjoy -- some companies are only allowing it with strings attached. And that could, in turn, make it a less desirable option going forward.
When remote work means less pay
One of the reasons remote work is so appealing is that it allows employees to pick up and move to any part of the country. That means workers who once had to rent or own homes in expensive metro areas to be near their office buildings can now, instead, move to smaller cities that are far more affordable.
But some companies aren't letting employees get away with that. Facebook, for example, has said that any employee can ask for a long-term work-from-home arrangement. The caveat, though, is that if those employees opt to move to a less expensive part of the country, their salaries will be adjusted to reflect that lower cost of living.
And Facebook isn't the only company adopting this approach. VMWare, for example, is also open to letting employees work remotely on a permanent basis. But like Facebook, it, too, will implement pay cuts if workers move from its home base of Silicon Valley to areas of the country that are much cheaper to live in. And chances are, more companies will adopt similar policies as they continually reassess their remote work policies.
Good news for investors
A lot of people who are used to working remotely don't want to return to an office. And many companies aren't forcing them to. But if employers increasingly start to implement pay cuts in remote work situations, employees may opt to come back to the office to retain their higher earnings. And that would, of course, be great news for office REIT investors.
If the demand to return to offices increases on the part of employees, companies will need to retain and re-sign leases with more square footage, thereby pumping revenue into office REITs. And that could help fuel the sector's recovery.
Of course, the fact that some employees don't like working from home and would rather report to an office could work wonders for the sector, too. But many surveys have emerged revealing that remote workers want to stay that way. If pay cuts become increasingly commonplace, that attitude might change in a way that benefits investors greatly.