Work from Home and Commercial Real Estate – Evidence from Stock Markets

We explore investor expectations about the effects of work from home (WFH) for the commercial real estate sector. We assess how differences in WFH exposure of listed real estate investment trusts (REITs) in the largest European economies – Germany, France and the UK – during the early stages of the COVID-19 pandemic affect their abnormal returns. We measure WFH exposure as REIT’s exposure to the office sector, central business districts (CBDs) and WFH tenants. To capture tenant’s strong commitment to working from home in the future, we construct a variable for tenant WFH intensity using tenant WFH announcements between March and June 2020. We show that REITs with higher WFH exposure have significantly negative abnormal returns independently of their domicile, sector specialization or CBD exposure. Equity investors look at REIT portfolio composition and WFH announcements by tenants to assess the likelihood of WFH in the long term and the associated drop in office demand