Morgan Stanley
  • Research
  • Jul 29, 2020

How “Work From Home” May Work for Investors

Working from home began as a short-term response to COVID-19, but the trend will likely endure, with societal, business and market implications.

Since the arrival of the coronavirus in the U.S., roughly half of the country’s workers have been clocking in from their kitchen tables, spare bedrooms and home offices. What was initially expected to be a short-term response, however, could be the new reality, with broad implications for consumer spending, human capital and real estate, among other areas of the economy.

“Industries will vary in how and when workers return to the office, but in general we think the experiment has been relatively successful," says Adam Virgadamo, U.S. Equities Strategist, “That means the shift to remote work could continue well after a viable vaccine is identified."

In tandem with a recent report examining life in the time of COVID, the Morgan Stanley Research U.S. Economics team assessed the feasibility of working at home for some 750 occupations. Their analysis suggests that roughly 40% of U.S. workers will continue working from home (WFH) in the near term—up from 7% pre-COVID—and that this percentage could settle at different levels, depending on the timing of a vaccine alongside consumer and business risk aversion.

Over 50% of America Has Worked from Home During COVID-19

Source: AlphaWise, Morgan Stanley Research

The base-case outlook of our economists, which assumes a vaccine is readily available Q2 2021, assumes 30% of U.S. workers will continue clocking in from home over the next three to five years, or double the U.S. Bureau of Labor Statistics' pre-COVID 15% estimate.

“The shift to work from home is creating a new normal that is remaking the workplace, consumer behavior, spending patterns, productivity and more,” says Virgadamo.  “Ultimately, these shifts could be longer term positives for the economy as well as the stock market.”

50% of the Non-Self-Employed Workforce May Be Able to WFH

Source: Morgan Stanley Research

Trading Power Suits for Sweat Suits

As anyone who has worked from home can attest, the absence of a daily office commute changes spending patterns. Gone are regular purchases for office attire, dry cleaning, work lunches and afternoon pick-me-ups—replaced by in-home dining and athleisure.

“When we work from home, excluding healthcare, spending trends shift to resemble those in retirement," says Ellen Zentner, Chief U.S. Economist. “If higher WFH arrangements are sustained, we expect substantial shifts away from apparel, food-away-from-home and transportation."

That said, more people working from home also means more shopping from home—a plus for e-commerce players—with attendant effects on sectors including warehousing, logistics and payments.

Morgan Stanley Research Has Raised Their U.S. E-commerce Estimates by Roughly 10% for Both 2020 and 2021

Source: Company data, Morgan Stanley Research

Questioning the Future of Commercial Real Estate

Commercial real-estate markets will also see a major impact from the WFH trend as lower demand for space over time may weigh on absorption rates, or the ratio of available space leased or sold in a defined period. “Fewer workers in offices and fewer face-to-face meetings will mean a lower rate of nonresidential construction, hotel occupancy, business travel, and use of corporate dining halls," says Richard Hill, who leads the U.S. REIT Equity and Commercial Real Estate Debt research team. 

Major Economic Variables Based on Four COVID-19 Scenarios

Incremental Office Employees WFH
5% 10% 15% 20%
U.S. Office Jobs (000s) 27,426 27,426 27,426 27,426
New Office Jobs WFH 1,371.30 2,742.59 4,113.89 5,485.18
Office Space Lost Per Employee 100 100 100 100
Lost Office Demand Sq. Ft. (000s) 137,130 274,259 411,389 548,518
Current U.S. Office Stock 3,938,324 3,938,324 3,938,324 3,938,324
Lost Office Demand % of Stock 3% 7% 10% 14%
Current U.S. Office Vacancy 12% 12% 12% 12%
Potential Vacancy with WFH 16% 19% 23% 26%
Source, BLS, Morgan Stanley Research estimates

Suburban residential construction, however, could rise, as more people hunt for homes outside of city centers. As a result, single-family rental REITs and banks could see a tailwind from residential mortgage demand. Auto demand may also see a surprising boost, as could delivery services companies who can charge higher rates for delivering packages to lower-density areas.

New Potential for Human Capital

The implications of WFH for the broader labor market, however, may ultimately be a positive. Among other potential benefits, “more durable WFH arrangements open the door for individuals who were previously out of the labor market to re-enter and find productive employment," says Zentner. This includes people with disabilities, who historically have had reduced participation in the labor market.

Moreover, by eliminating commutes and adding more flexible work arrangements, WFH could be a game-changer for working parents. Research from the Center for American Progress has found that higher childcare costs have reduced employment of mothers with children under the age of five by 13%, and this factor alone explains about one third of the decline in female labor force participation.

The jury is still out on whether WFH helps or hinders overall employee productivity. At the industry level, however, Morgan Stanley Research analysts are already seeing wider and accelerating adoption of productivity-enhancing technologies, including cloud computing, collaboration tools, automation, and data and analytics.

For more Morgan Stanley Research on COVID-19 and the U.S. economic and market outlook, ask your Morgan Stanley representative or Financial Advisor for the full reports, "Life After COVID" (Jun 21, 2020) and “Emerging Themes in Life After COVID" (Jun 21, 2020). Plus, more Ideas from Morgan Stanley's thought leaders.