Moody’s Analytics has been conducting a series of analyses on commercial real estate and surrounding problems with varying degrees of focus on office. So, for example, moderate changes in cap rates and cash flows could cause big problems for the property class. And then the firm the percentage of buildings in major metros — 31% on average (with wide variations) — that are old enough to be considered at least borderline obsolete.
This week, Moody’s examined the question of commute times. “While many factors can affect the vacancy rates of metros, such as economic, employment, and population changes, we continue to hear chatter that firms are more reluctant to maintain/expand space in metros where employees have greater difficulty getting to the office,” they wrote.
“In an era where employees still have a bit of an upper hand in the remote work debate, any additional cost of coming to the office could be quite important to utilization rates, and ultimately to office sector performance,” Moody’s continued. “In a simple analysis, we tackle this issue by observing a metro’s time to work data, as measured by the Census Bureau’s American Community Survey, in relation to our Moody’s Analytics CRE vacancy rate data.”
It’s a sensible data point to consider. Should the wooing employees back into offices be something needed beyond a simple executive directive to show up (and executives often have less effective power than is thought), success may take more than espresso bars and good design.
Looking at commuting time makes a great deal of sense. The longer the commute, the more inconvenient travel and the longer the workday become. That also can mean more money, whether more fuel and maintenance for a car or increased fares on mass transit.
Moody’s calculated a correlation between 2019 to 2021 vacancy rate changes and the percentage of workers who came to the office but with a commute time of less than 15 minutes. “There is plenty of ‘noise’ in the chart, but the general trend line does show that vacancy rates rose more in metros where it takes workers longer to get to work,” they noted.
“Four of the top five metros with the largest office vacancy rate decreases were Rust Belt cities including Dayton, Buffalo, Cleveland, and Rochester. At least as of 2021, Dayton, Buffalo, and Rochester featured above average share of commutes less than 15 minutes of one-third or greater,” the analysis found. “Meanwhile, four of the bottom 5 metros (San Francisco, Charlotte, Austin, and Louisville) have a share of commutes less than 15 minutes at or below the average of one-quarter with San Francisco having the lowest share of 15%.”
The relationship isn’t completely predictable because other factors come into play. For example, Austin had an average percentage of sub-15-minute commutes but also increased office inventory by 12%, raising the vacancy rate by 8.6 percentage points.
