Why Now Might Be The Best Time To Sell A Property
We’ve been accustomed to there being no such thing as the Top Of The Market in the Bay Area, California for a very long time. Desirability has been at an all-time high since the dot com boom, the quality of life in the Bay is better than most other parts of the country, and 18 of the world’s Fortune 500 companies have their HQ in the San Francisco Bay Area. Life’s been pretty good.
But what if we’ve hit the peak? Hear me out on this theory before judging too heavily.
Let’s take a journey back in time to early human civilization when people flocked toward cities for trade, industry, and interaction. Cities grew based on the idea that people needed to be in close proximity to each other to trade and do business. In 2020, that’s obviously not the case, nor has it been since the early 2000s in certain industries.
Cities like San Francisco, London, Hong Kong, Sydney, etc, became global hubs of trade and commerce, resulting in monumental spikes in property values that have continued to today. No one ever thought that could change, either, myself included. It seemed unlikely that anything could disrupt this pattern. But what if that just happened?
The difference between this pandemic and previous ones is how interconnected the world has become. Companies have the capacity to operate remotely, in some cases exclusively remotely. The internet has reduced the need for physical proximity. Slack, Cloud Computing, iMessage and Skype have given most industries a structural framework to evolve into a more digital landscape. #WFH (work from home) has become increasingly established in the modern workplace.
Now, in the midst of that, throw in a cataclysmic pandemic event where everyone now has to work from home. Corporations across the board (literally all of them) are now forced to test their bandwidth in a digital realm. Many companies will tank because they weren’t prepared, and the 6.6M unemployment applications last week will absolutely continue to rise. We are just beginning to see the repercussions of rigidity.
Depending on the duration of shelter in place, companies now have a data set they would have never imagined having: A true split-test of organizational productivity from the office vs. productivity with the entire company working from home.
Let’s assume organizations see a similar ability to operate, streamline, optimize and pivot during these next months while their entire staff is working from home. Large companies are genuinely going to begin considering the value of the corporate real estate they lease/own. Say, for example, they see 80% of previously established productivity, they trim some fat and streamline services over the coming weeks, then optimize in a way that brings them back to a similar level of output (revenue is not the metric to be measured here as spending across the board is severely hindered).
Why would Instagram pay $500M for a 10-year lease at 181 Fremont when the entire organization can perform just as efficiently working from home?
What if other companies felt the same way? What if employees push harder for the ability to work from home from this day forward? After all, who isn’t sick of wasting hours commuting in traffic? I certainly enjoy not being in my car nearly as much as I was before shelter in place.
Let’s say commercial real estate takes a hit because companies are nimble enough to pivot. Tech companies in particular are likely to take this path, so this idea will be especially relevant to the bay area. For example, if AirBnB doesn’t lease on Brannan St anymore, or Linkedin realizes they can open a few smaller satellite offices around SF (WeWork style...RIP) for a fraction of the cost, and a wave of smaller businesses follow over the next few years. The need for centralized proximity ceases to exist.
Employees that were contemplating moving out of the Bay Area now have the infrastructure and opportunity to do so. Tech employees now get to live in a 5 bedroom house in Truckee for ¼ of the cost of their home in Potrero Hill, or San Mateo. They no longer need to commute, quality of life rises, families get to spend more time together, etc. There are a wealth of positives that will come from this global catastrophe.
What happens to residential real estate if that happens, though?
What if the desirability of living in cities begins to decline?
What if people no longer need to live on top of each other so they could get to work on time?
The repercussions won’t likely be measurable for the next few years as real estate is a lagging indicator of group psychology, but it will be measurable.
So you tell me, have we hit the peak?