Of all the changes wrought by the pandemic, remote work seems to be the one with the most staying power. As both workers and companies discover that many jobs are easily accomplished from home, the need for office infrastructure—whether that is a second-floor cubicle on Main Street or a corporate megaplex outfitted with massage chairs and ping pong tables—is shrinking.
While commercial brokers are facing a long-term, potentially existential crisis around the value of office space, the effect on residential is much murkier.
“We don’t know what is going to happen, or when it is going to happen,” says Sophia Delacotte, an agent affiliated with Compass working in San Jose, California, which hosts offices and headquarters for dozens of major tech companies.
Earlier this year, tech giant Google announced that it was pausing construction on a $19 billion, 80-acre megaplex campus that was intended to provide not only offices, but housing, parks and other ancillary amenities to employees—and the public.
“There was not a house that was close or easy to access from this upcoming project…that you wouldn’t mention it as a selling point,” Delacotte says.
With the project’s cancellation, there haven’t been any immediate, dramatic effects in residential. Part of that is because the announcement was not surprising to many. Delacotte describes “radio silence” from Google on the project as soon as COVID hit. She says she stopped mentioning the project as a selling point almost two years ago.
But when an investment of this magnitude disappears, there are always going to be ripple effects.
On the other side of the country, another tech mega-corporation also announced a change in one of its offices—one that made even more headlines.
Only a couple months after the Google announcement, Amazon paused construction on its “HQ2” campus in Arlington, Virginia—another project that was designed to be more than office, with parks, shopping, childcare facilities and gardens. A significant portion of that had already been completed, but the announcement sparked controversy due to the very public bidding war Amazon held for HQ2 back in 2018, and the $23 million in tax incentives Arlington offered.
Trey Grooms is an agent affiliated with eXp working in Arlington. He says he also used HQ2 as a major selling point, going so far as to calculate the exact distance to the HQ2 complex from every listing.
But the decision to pause really might not have nearly as big of an impact as many would guess, based on the size and scale of the project.
“We have so many corporate headquarters in Arlington that…it really was not a big blip. I think the steam may be gone from the train, (but) the train’s here,” Grooms says.
Big pond, little fish
The pullback on big headquarters and office space is not limited to just a few companies on the coasts. A recent survey by commercial real estate service company CBRE found that over half of respondents said they were planning to further reduce office space.
John Mentis is another agent working in Arlington, affiliated with Long & Foster Real Estate. He says he has lived in the neighborhood adjacent to HQ2 for more than 25 years, and like Grooms, calculated the distance between listings and HQ2.
But he adds that the kinds of positives that buyers are looking for are much longer term, and not necessarily dependent on a single project—delayed, paused or otherwise—and Mentis says he still sees a big upside to living in the area.
“I position the area as a very good candidate for potential long-term growth in the value of area residential real estate. I am still using this marketing angle today because the infrastructure is improving even if HQ2 is delayed,” he says.
Delacotte emphasizes that at least in San Jose, it is too early to guess at what the long-term, wider ramifications of a big project cancellation will be (assuming that Google does not restart or revamp it). But she guesses that residential real estate transactions in the area will be taking on a different tone very soon.
“The job of a good buyer’s agent is to find any possible argument to negotiate the price,” she says. “If I was representing a buyer in this area, in my negotiation…(I would say) ‘You know, better sell it at the right price because once people are aware of (Google delaying the project), they might think twice before buying.’”
That isn’t necessarily going to affect every home—Delacotte says it is the properties that are overpriced where agents will see an opening to negotiate based on Google’s decision.
But like Mentis, she says it is the broader investments in infrastructure that are boosting the area. An extension of the local train line meant to support and entice projects like the Google campus is still ongoing, with two new stations and other transportation improvements. Delacotte says these things can be just as important to the market as the jobs or infrastructure created by a big office building.
Grooms says it is already possible to see the ancillary effects of HQ2 in Arlington, with some “beautiful land and architecture” in an area that was until recently, less desirable.
“For many, many years, South Arlington was not the best part of Arlington. People didn’t necessarily want to be in South Arlington,” Grooms says. “In fact, they even renamed it all. So Crystal City became National Landing, and they took in an entire (highway) corridor and started adding restaurants and hotels, and growing the bus line, so that individuals who did come to work…were going to have a place to live and enjoy the community.”
Because these positives are not necessarily making headlines or top of mind for consumers, Mentis says he usually initiates conversations with people about the changes happening that are not directly dependent on Amazon.
“I’ve seen the area change over the years, and now I see changes occurring on almost a daily basis,” he says.
While many people will be influenced by the headlines, serious buyers will be open to hearing the whole story. Delacotte says she is always reading up on the specifics of new developments, armed with both positive and negative news that can help her serve buyers or sellers.
“We are journalists in a way. I mean, if you know your market, I spend an hour every morning reading everything that I find on real estate,” she says. “So we need to feed our clients with information. I know a project is put on hold because I’m on a distribution list, so I know—you call four, five real estate agents and probably most of them won’t even know.”
Hard money
The big fear for both consumers and agents is a question that again, cannot be answered yet: will a pullback in these big projects cause local markets to stagnate and crash?
Mentis says there is no sign of this so far, as the uncertainty of remote work continues to guide the path of the market.
“I don’t believe the delay in construction has had any impact on sellers,” he says. “The pandemic put an interesting twist on the market. Those who were hired to work at HQ2 were expecting to buy a home here, but their plans were put on hold when Amazon told them to stay where they were and work remotely. As Amazon starts bringing employees back to the office, some of those employees may reactivate their buying plans.”
Grooms points out another side-effect of this uncertainty: an increased demand and value for rentals. Some people have used rental income to qualify for a new home purchase, according to Grooms, as employees of Amazon or other big companies are often looking to rent either indefinitely, or at least until they have more certainty about remote work.
Owning a property management company, Grooms adds that he makes some incredibly valuable connections with folks who come to town and rent, learning a lot about the companies that are coming in and out of the region—their people, their plans and their priorities.
“So I’m actually in their living room. I get a chance to learn what’s happening inside some of these corporations, which really helps me have great conversations with both buyers and sellers,” he describes.
One possibility that some have worried about is whether a cascade of corporate withdrawals could start to weigh on other businesses and the broader economy—retail and restaurants that depend on corporate workers to sustain them. There are some reports and data showing that this is already happening in cities around the country.
But Grooms says that in Arlington, businesses are adapting, with food trucks and happy hours meant to draw remote workers out of their home offices.
Delacotte says she is not particularly worried that the Google project pause—or any other recent change around office space—is going to precipitate a larger run on these projects in San Jose, which would almost certainly have a devastating effect on residential. Developers who bought land and are “building to sell” might be in trouble, she admits, as costs have gone up and demand plummets. But even these projects can negotiate with local governments to allow them to lease until the market rebounds, Delacotte says.
“There is simply too much at stake,” she says. “I really don’t think that it would happen just for financial reasons, because there’s so many people that would lose money. Sometimes it’s better to help a company finish the project or to resell the project than to stop it.”
