Have you ever thought about the pushback against remote work policies? Why is it happening despite the increased productivity, higher retention rates and greater job satisfaction? We answer your questions here and urge commercial real estate firms to take a different tactic when seeking to address the reduction in revenue caused by remote work transformations.
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Negative economic impact on central cites
The Bureau of Labor Statistics (BLS) at the US Department of Labor recently shared their findings, “The Impact of Remote Work on Local Employment, Business Relocation and Local Home Costs.” While there have been many reported benefits to the work from home movement, Barrero in 2021, suggests that the economies of centrally located cities have been negatively impacted due to the loss of workers who had traditionally commuted into their cities thereby reducing demand for local services. Barrero’s suggestions are in agreement with those of Stanford University researchers who estimated, that local economies heavily dependent upon commuters to vitalize their city centers could experience a reduction of up to 50% of total daily spending in bars, restaurants, and shops.
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Barrero’s comments and those of the Stanford University researchers are borne out with a Pew Trust Report advising central cities to focus more on promoting shared workspaces, broadband availability, internet speed and innovative tax rates to attract a diverse set of employers. These recommendations are a shift from the emphasis on commuter transit and the development of densely packed houses and apartment complexes.
The results of the statistical study were as follows:
- Daily foot traffic in any given location is decreased when the increased incidents of employees who had previously commuted to that location now work from home or telework,
- However, the reduction in foot traffic can be offset by the number of workers who live and also tele-work within that same given location,
- The adverse impact of reductions in daily foot traffic within any given location is particularly strong for workers who are employed in food services and accommodation industries.
- The negative impact of a reduction in US Census tracked foot traffic was especially strong for employment in accommodation (hospitality, short term rentals, RV parks, hotels) and food services (preparation and distribution of food such as restaurants, cooks, counter table servers).
The chronic and consistent reduction in daily foot traffic takes a drain on local economies, no doubt. Stanford researchers, in 2021, predicted “a longer-run decline in city centers.” The persistent demand of employees who wish to work from home is associated with lower occupancy rates.
Remote workers are skilled scalable service workers
In addition to the demand of most employees desiring to work virtually, researchers sought to determine the demographics of those who work from home. Unsurprisingly, those holding occupations in the ‘skilled scalable services’ were in information technology, information and media, insurance, finance, professional and legal services, management and consulting (Althoff et al.,2022).
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Skilled scalable service workers may have highest disposable incomes
Academic research as well as. common sense indicates that these occupations have experienced the highest work from home prevalence as well as the highest salaries (Dingel and Neiman, 2020). And, perhaps the highest amount and greatest proportion of disposable income available and readily used when previously commuting to the traditional office setting.
That said, metropolitan areas with a high percentage of workers in these industries experienced dramatic reductions in the local economy on account of colossal declines in expenditures related to local spending. The associated reduction in daily foot traffic led to a change in their consumer spending patterns.
Commercial occupancy and vacancy rates in some cities below 50%
Kastle Systems compiles real time data from its keycard, and fob used in 2,600 commercial buildings and 41,000 businesses to prepare a weekly occupancy rate of major municipalities and cities. The work from home phenomenon has resulted in an average of 50% occupancy rate. Or said another way, a 50% vacancy rate across major metropolitan cities. See the graph below.
As you can see from the above chart (Kastle Back to Work Barometer: Weekly Occupancy Report 4.10.2023); Washington DC, San Francisco, Chicago, New York, San Jose, and Philadelphia have experienced occupancy rates between 37.1% to 47.6%. Conversely, the highest occupancy rates for data collected up through April 5, 2023 and reported upon this week are Austin, 63.6% and Houston, 60.9% (top ten US cities).
100% occupancy of high rise commercial buildings unlikely
Even if commercial real estate investors were successful in helping to marshal in the death of remote work, 100% full occupancy may not be feasible. Stanford researchers project, based upon informal surveys and discussions with CEOs of Fortune 100 companies, the possibility of a shift , cutting in half the density of office space leased and to reduce by 15% or more the number of work days in which employees must report to the traditional office sitting. What does this mean in laymen’s terms?
Employers may shift from leasing skyscrapers situated in metropolitan cities to industrial parks located in the suburbs in rural areas. Another dominant theme of the last 40 years of American cities was the shift of office space into high-rise buildings in city centers.
Commercial buildings can take an altruistic approach
Rather than taking the negative approach to kill, ban and fight against the remote work movement, perhaps owners and investors of commercial buildings should take a more altruistic and even profitable approach, would you say?
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If you follow our logic, you would still need to answer questions related to zoning.
How should the zoning boards of central cities react to the transformation related to lower commute times, reduced daily foot traffic, and hence, shifts if not outright decreases in local economies? These economies, which historically, on account of heavy commuting to work in central cities, led to vibrant cities with an array of culture, excitement, entertainment and cuisine choices.
Chicago-Kent College published a research paper titled, “Untransit: Remote Work and the Transformation of Zoning,” providing an answer. Stephanie Stern, professor and author of the paper makes the following suggestions for local government:
- Initiate zoning reform to allow once vibrant shopping malls, sparsely attended cinemas and gyms, and hotels shackled by peak tourist seasons to be converted into offices.
- Promote and provide new local services,
- Provide greater services to support digital and internet connectivity.
And while these two research papers from the BLS and Chicago-Kent reveal the drastic shifts in commuting traffic have significantly impacted central cities and municipalities, other research has shown that these adverse effects are felt statewide. States too have experienced drops in spending which due to the reduction in state to state commuters who reside in one lower-cost state and had formerly commuted to another state to earn higher wages.
Update- Commercial Realtors Use to Get out of Leasing Slump
No where is the commercial leasing slump felt the greatest than perhaps New York City (NYC). There, according to the NY Post, commercial property owners are fighting to fill up upwards of 20% vacant space. How? By offering amenities that are fun and exciting. Breakfast rooms, town hall spaces large enough to seat 300 returning employees comfortably, sports arenas, golf simulators and pickle ball courts are the rave. Are these tactics effective?
Yes! Rather than experience the dreaded 20% vacancy rate, upscale buildings catering to the exclusive needs of returning employees are now leased at around 97% full occupancy (see 101 Park Avenue and 1 World Trade Center).
Conclusion
Most importantly, Stern emphasizes that central cities and municipalities should take heed in the aggressively preparing and planning for publicly accessible remote work sites. For her recommendation, she cites research demonstrating that employees working from home still desire to interact with others and break away from time to time, the monotony of tedium household chores and distractions.
