The graphic at the top of this post comes from the Wall Street Journal in an article by Lauren Weber, Peter Grant, and Liz Hoffman. You can click on the graphic for a larger version. Here’s the meat of the article:
More than two years into the Covid-19 pandemic, exasperation is growing among business, city and community leaders across the U.S. who have seen offices left behind while life returns to normal at restaurants, airlines, sporting events and other places where people gather. Even after many employers have adopted hybrid schedules, less than half the number of prepandemic office workers are returning to business districts consistently.
The problem is most pronounced in America’s biggest cities. Nationally, office use hit a pandemic-era high of 44% in early June, while cities like Philadelphia, Chicago, San Francisco and New York have lagged behind, according to Kastle Systems, which collects data on how many workers swipe into office buildings each day.
The divide has created a sense of urgency among politicians and business leaders in these cities, where the stakes are especially high because office workers are the engine of local economies and fuel small businesses.
From April 2020 to March 2021, 26,300 New York City small businesses closed permanently, according to a report the mayor released in the spring. Available office space in New York has grown to about 125 million square feet, up from 90 million in the first quarter of 2020, according to data firm CoStar Group Inc. Retail rents in Manhattan have declined for 18 consecutive quarters, starting well before the pandemic, according to commercial real estate services firm CBRE Group Inc.
One issue for workers in big cities is time spent in transit. New York, Washington, D.C., San Francisco and Chicago have some of the nation’s longest commute times—as well as some of the lowest return-to-office rates, according to a Wall Street Journal analysis of the country’s 24 largest metropolitan areas in May.
Concerns about crime and safety, including on public transportation, have contributed to urban employees’ unease. In New York City, major crimes, which include murder, robbery and assault, rose about 7.5% from 2019 to 2021, according to New York Police Department statistics. In San Francisco, there were 56 homicides in 2021 compared with 41 in 2019, while robberies and assaults both fell. And in Los Angeles, violent crime edged up about 4% between 2019 and 2021.
The graphic may be a bit hard to understand. For each of the ten cities over at the far left is the pre-pandemic occupancy rate, for all of them lurking just short of 100%. The shaded area for each city depicts the present occupancy rate and the black line indicates the ten city average rate.
It looks to me as though big cities are in serious trouble. Those most affected will be the people who worked for businesses that served all of those officeworkers. Janitorial services, maintenance, restaurant workers, and so on. Most of them probably live in the cities, they can’t work remotely, and the businesses they worked for are gone. City workers, too, will be affected as will taxpayers in cities like Chicago who are paying for the pensions of retired city workers.
I don’t know you can conduct a business if your staff is dispersed all over Hell and back. You need face-to-face communications (much of which is body language) to effectively coordinate people and processes. Also, the logic behind cities for all time is that there are economies and synergies of having many different businesses and skilled people in close proximity.
On the other hand, New York and San Francisco are dangerous, dirty, and expensive places to due business and to live in. Dallas, Houston, and Austin are not so much so.
My daughter works for a publishing house in Columbus, Ohio, and her company is nearly 100% working from home. Of course, that means they could be hiring Indians or Chinese or Vietnamese or Brazilians to do her work. Work-from-home seems to be a dangerous option for the worker.
Houston and Dallas both have higher violent crime and property crime rates than NYC and Austin. San Francisco has lower violent crime rates than Houston and Dallas but higher property crime rates. Easy to look up.
https://en.wikipedia.org/wiki/List_of_United_States_cities_by_crime_rate
Too early to tell how this shakes out. If you have an established work team you can avoid the office for quite a while and still do well but I think it will be hard to work in new people. I think we selectively find what works. I have changed all of our educational efforts, almost, to online. We have to reach 14 hospitals now so it is the only practical way but it is also much more efficient.
Steve
The key point is that all ten cities, regardless of other factors, have significantly lower occupancy rates than before the pandemic. Any other conclusion is a rationalization.
The business and revenue will be lost even if occupancy rates bounce back and that’s far from a sure thing.
“…but I think it will be hard to work in new people….” but it’s quite doable. I started with my current employer the week of March 23, 2020. I was the last person to interview and onboard in person since that date, and the first person to be trained completely remotely. I wasn’t sure the training via computer was going to work, but my boss said it had to work. There was no choice, and it was on me to make it work. Then she hung up.
So I made it work, or rather, we made it work. My employer has 140 employees, and we all worked at home for two full years. We’re back now in the office one day a week. I’m going to retire next month, and I can look back and say this was a surpassing strange way to end my career. The last two years have had a sort of dreamlike quality, but a lot of good came out of the entire experience.
So it’s doable. Since I started, seven other people have been hired and onboarded and trained online. I’m going to retire proud that I was both pioneer and guinea pig.
I work in downtown Austin, and have since 2007. My wife has worked downtown since 2005. One of the reasons cited for the continuation of work-at-home by office workers all over the downtown core is the decline in quality of life while downtown. It’s the homeless. Austin won’t make any attempt to control them; things became so bad that our employer had to use internal security to escort employees from the parking garage to the building a block away. I walked up the steps into the lobby early one morning and nearly stepped into a steaming pile of feces and toilet paper. Many employees would leave the building during the day to do banking, go get lunch, buy a cup of coffee at Starbuck’s or just to get some fresh air. Some employees would walk nearly 10 blocks for a hamburger, but so many customers from all over the downtown core got tired of running the gauntlet of homeless in front of the restaurant that it closed. No one goes outside the building any longer, except to come in to work or to go home. So when the pandemic sent everyone home it was like manna from heaven. No more homeless! No more being accosted, or having to step over syringes or sleeping bodies on the sidewalk. No more screamers. No more fighting. No more public urination and defecation. And no more begging. No one getting into your face and becoming threatening because you wouldn’t give them money. So, yeah, quite a few left when they knew they’d have to go back to that.
Austin cannot be the only major city that has this problem with the homeless.
And my wife’s employer has a staff of 1800. Been working at home for two years. Told they’d have to come back full time. Her employer lost nearly 12% of their staff in 90 days. Retirements for most, but some just quit, shaking their heads at the pointlessness of it all.
@Steve,
The crime statistics for San Francisco, New York, Chicago, Portland are utterly fraudulent. Those cities do not even respond to mass lootings of businesses, and they refuse to prosecute many classes of crime. A significant portion of downtown Portland has been seized by armed and armored insurrections who are terrorizing the locals. This being done with the open connivance of the local governments. These are lawless cities, and you cannot believe any statistics. They publish. Walgreens, Starbucks and other national chains are closing stores because it is unsafe for their workers.
You can look it up.
“The key point is that all ten cities, regardless of other factors, have significantly lower occupancy rates than before the pandemic.”
I was not disputing that. Just saying that I dont know if it stays that way long term. A lot of employees like saving the drive time. A lot fo employers like saving on office costs. There are a lot of benefits. I still think it is harder to instill group culture when you never meet in person. You miss stuff. Someone just out of school is. I think, less likely to adapt. There are exceptions. The IT crowd is so used to staring at computer screens and so many of them have personality issues anyway that in person may not be such a benefit, but even for them I expect that at some point in their career, especially as they move towards management/senior levels they will benefit from in person meetings.
Steve
I really don’t see how small business people will be able to sustain themselves in the face of so many obstacles – many of them government-enabled.
In June of this year alone 30% of businesses could not pay rent. And, over 50% of small business owners don’t think they will still be in business six months from now. In the meantime homeless encampments are everywhere, often not in compliance with laws and behavior that most of us have to follow. They walk into cafes, demanding food/drink without paying. They pitch tents and shanties outside of graffitied businesses, decorated by their trash and excrements. But, law enforcement is powerless to do anything about these personal infringements unless a fire erupts – something fire departments are kept busy putting out.
Basically, living in a city has become a risky, exasperating trial. Residents can pack up and move. However, businesses don’t find this an easy option. Going out of business, and, like in the case of Starbucks, they try closing some down in vulnerable areas, or simply change their business models in other locations. At the end of the day, though, all these assaults on business will be felt by us all, in one way or another.
That doesn’t have much relevance. It’s been that way for two years. During that two years revenue has decreased sharply while expenses have stayed the same or even increased. Public employees generally have fixed schedules for raises. Plus there are unfunded pensions to pay.
Each year occupancy stays low cities will go farther into the red. What’s your proposal for going back into the black? Raise taxes and reduce public safety spending? Negative feedback loop.
Thinking you have to consider you can’t lure them back.
Cities will need to expand their tax base through annexation.
Expect some resistance to that.
But in a democracy, the majority can always vote to consume the minority.
A number of themes here.
Dave’s essential point was that cities are in trouble. Fewer people and businesses to tax, relatively fixed costs. That’s simply undeniable.
As far as work from home. Bob, in my opinion, is absolutely correct that for most businesses you need contact, especially at the executive and line level. But steve is also correct, that, for certain types of work: staff people, IT, independent specialties, sales, remote works. Its not clear to me that a radiologist needs to be at the hospital 5 days a week.
But I also think, and observe, that the covid driven work from home will lose its luster as time moves on. Otherwise we would have moved to WFH earlier. The real question is, and getting back to Dave’s original point, are cities and their small business base impaired. Me: yes.
Just a note. My business is one that can work as a hybrid. I’m no longer one of the two co-managing partners. But the two current MP’s, their staff and admins are all in NY metro. Operating partners, and guys like me who now only serve on the Investment Committee or on portco boards can be remote. The reason is simple. Portfolio companies are scattered all over the place. Our offices are the portfolio companies. You can’t manage investments from a central location. Government does that…….heh
” Its not clear to me that a radiologist needs to be at the hospital 5 days a week.”
Have talked this over with our chair of radiology. From my POV as a customer of the radiologist it is very helpful to have them in house. Much more efficient and faster. One of the radiology techs goes to our church and they also like it better for the same reasons. So from he radiologists POV they would be quite happy working from home and saving the drive time but they are going to stay in house to make the people who actually use their services happy.
I think this isn’t that much different than other jobs where the workers might be happier about staying home if they can but management is going to notice that quality isn’t as good. Mamangment will need to figure out how to balance who can stay home, who needs to come to work and how often.
Steve
I think a lot depends on the business and organizational culture.
I’ve been in a fully-remote job for five years now. It’s a small company with seven total people, everyone remote. There is, and never was, any office. We’ve had no issues onboarding new people.
But I can see how this would be difficult for a lot of companies, particularly large and bureaucratic ones. Although credit where it is due, the federal government – highly bureaucratic to say the least – is actually on the forefront of experimenting with different types and models of remote work.
As with many other things, a lot of it is cultural. Older managers from my generation and the boomers tend to think that anyone who isn’t in the office is probably slacking. Over time as there is turnover, that will probably change.
The new business / startups of today will eventually be the big companies of tomorrow.
And the startups of today are all fully or partially remote (because it saves money).
No one is talking about the biggest reason why WFH / hybrid is so appealing — you save the commute. I don’t know any person who enjoys commuting 1 hour each day way to and from the office. What has made the office part of hybrid work currently is commuting now is much shorter then before the pandemic. If more people go back to office and cause commuting to take longer, that will limit the appeal of the office…
Whether cities are prepared or not, the WFH revolution is here to stay.