Remote work has exploded in 2020, eliminating commutes for many of California’s office workers.

Without a commute, the growing remote trend has granted workers more flexibility in where they live. Many renters and even homeowners are looking beyond their resident cities to less expensive areas that are still near enough to their home offices, and yet offer more space and amenities for their dollar.

One big example of this dynamic is happening in the growing migration of Bay Area residents to nearby Sacramento.

As of July 2020, nearly one-in-four San Francisco home searchers were exploring homes outside their expensive metro, according to Redfin. On the other hand, Sacramento is the number one destination for Redfin home searchers seeking to move outside their current metros. In fact, over half of Redfin users searching for homes in Sacramento originated from outside the metro in July 2020. The biggest portion of these searches came from the nearby San Francisco metro area, where the cost of living is significantly higher.

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San Francisco residents consider moves to Sacramento

Investors seek out affordability

Sacramento is experiencing a growing trend of out-of-state and foreign investors seeking to build multi-family developments, according to the Sacramento Bee. One such investor, from Canada, specifically chose to build multi-family developments in Sacramento over San Francisco due to the greater opportunities afforded by Sacramento’s lower cost of land and booming population.

While investors are betting more remote workers will move to less expensive cities like Sacramento, the trend won’t continue if 2020’s remote workers go back into the office when the COVID-19 response subsides.

So, will the bet pay off for investors in low-cost cities like Sacramento, or will workers return to expensive job centers like the Bay Area?

Roughly half of U.S. workers were able to work from home in some capacity when the pandemic caused the country to initially shut down in spring 2020. Further, this is a trend that was picking up speed even before 2020, according to Brookings. Many business owners, upon the realization that their businesses are capable of sustaining a remote workforce, are giving up their office spaces to save on rent and related expenses.

Thus, while some of 2020’s newly-remote workforce will return to the office eventually, others have permanently released their tethers from the office. In other words, expensive job centers  like San Francisco won’t see a landslide of departing residents, but the exit may be significant enough to make a dent in both the residential and commercial real estate markets, in San Francisco and in their top destination cities.

Transforming spaces

With this shift, what is the long-term outlook for downtown areas which typically receive commuting office workers on the daily?

Commercial property owners, particularly those of office space, will need to be flexible as the trend morphs and grows in the years ahead. Central business districts (CBDs) will be most successful when they incorporate different types of flexible space, such as space that can be used as office space one year and residential the next, according to GlobeSt.

At this point in the 2020 recession, the commercial market most needing of flexibility is the hotel industry, followed by retail. Over 10% of lodging properties were 121 days or more delinquent as of September 2020, according to Moody’s Analytics. Just under 6% of retail properties were 121 days or more delinquent, signaling a coming wave of distressed sales. On the other hand, industrial, office and multi-family delinquencies have remained low, roughly level with pre-2020 levels.

Commercial property owners will need to get creative as the market adapts to the harsh realities of 2020, some of which are here to stay. Real estate professionals can help by strategizing alternative uses for properties that linger on the market.