HomeReal Estate NewsCommercialHow remote work impacts office CRE and the city job outlook

How remote work impacts office CRE and the city job outlook

Restaurant operator and caterer Restaurant Associates is one of a number of companies that was forced to change its business model on the fly during the COVID-19 pandemic. As businesses began to reopen this summer, Restaurant Associates and other companies likely began to show optimism for the return of a pre-COVID environment, but the Delta variant of the coronavirus could make that optimism short-lived, The New York Times reports.

“We were very hopeful that by September we would start coming back strong,” Restaurant Associates Chief Executive Dick Cattani told The New York Times. “(Now), we don’t know what’s happening, what’s next.”

Cattani isn’t alone when it comes to wondering what’s next for his business because of this new variant. Kevin Thorpe, chief economist of the commercial real estate services firm Cushman & Wakefield noted that the longer COVID-19 is present, “the more transformative it is going to be.” That leaves a big question mark for the service economy in cities—restaurants, hotels, taxi services and entertainment venues employ millions of workers—can they bounce back from the numerous waves of COVID-19 that have kept their customer base away? The answer might not be known until employers and workers alike reevaluate their outlook on proximity and density towards space, according to The Times.

Researchers estimated that from April to December 2020, half of the American economy’s working hours came from employees’ homes. They believe that figure will drop to about 20% after the pandemic. Even if that estimation is correct, it’s still about four times the amount of working hours that were supplied from home in 2017 and 2018.

Remote work’s impact on cities’ economies

The most amount of remote work will likely be done by the most highly paid workers in dense, populated areas. Workers in high-skill, information-laden services like finance and insurance were still working remotely in January, according to researchers. Additionally, larger cities could lose their most skilled workers and the customer service economies that they sustain, The New York Times reports.

“As a result,” the researchers said, “they may shrink in size unless they manage to provide advantages that justify the costs of urban density when residential choices are set free from proximity-to-workplace considerations.”

Currently, 18% of office space in central business districts throughout the U.S. is empty; 12% was vacant prior to the pandemic, according to Cushman & Wakefield. Large companies like Twitter and United Airlines are decreasing their CRE footprint, while sports equipment retailer REI sold its corporate headquarters and opted to build three smaller satellite locations around the Seattle areas for employees to operate out of if they chose to.

“We felt there are moments when being physically together makes a difference but it doesn’t have to be all the time,” said Christine Putur, REI’s executive vice president for technology and operations. “We want to move forward with more habits, new norms — let the outcomes drive when and how we get together.”

Remote work and changing wages

Some companies are offering a telework option, but will base their employees’ pay based on where the live. Google has adopted this practice and provided employees with a calculator so they can see how where they work from might impact their salary. If workers still opt to work remotely, outside of the city despite the potential salary alteration, city center spending could fall by 5 to 10%, according to researchers. The remote work shift would financially harm restaurants, bars and other places that count on office workers’ spending.

“Some of the leisure and hospitality activities will follow those people that are no longer in the downtown area,” Researcher Steven Davis of the University of Chicago told The New York Times. Suburban businesses might not see a bump however, as workers are likely to have less lunches out and happy hours than when they worked in their respective cities.

When will things return to normal?

As long as remote work options remain for office workers, businesses for surrounding restaurants and shops will likely remain limited. New job opportunities are coming about however, The New York Times reports. For example, warehousing and transportation added more than 200,000 positions. The surge is in part due to Amazon and other e-commerce businesses trying to keep up with the online shopping increase. Unfortunately for cities, warehouse work is often outside of the area.

If cleaning requests are any indication, it could be some time before offices are back to pre-COVID vacancy levels. Currently there are 3,000 of 21,000 office cleaners in the Local 32BJ of the Service Employees International Union who are waiting for their buildings to reopen. That figure is down from where it was during last Spring (7,000), but progress has stalled as companies have begun to delay their return to the office plans.

“Six weeks ago, we had so much momentum,” Dennis Johnston, head of the union’s commercial building division, said. “For our members out of work, the idea that reopening is not going to happen until next year … it’s ugh.”

If there’s anyone who could slow down the remote work trend, it’s employers concerned about productivity levels, according to University of California, Berkley economist Enrico Moretti. Job offers that allow fully remote work increased from approximately 2% of openings to 6 to 7% after the pandemic hit, he said. The numbers haven’t changed since then.

“(Remote work) remains a niche phenomenon,” Moretti told The New York Times.

Moretti also does not expect full-time remote figures to increase much either, as it does not allow for as much interaction, collaboration or innovation as in-building, face-to-face environments do.

Cattani hopes he’s right, and there are a number of reasons that could work in his favor. Workers likely won’t want to take a pay cut to telework, more will continue to get vaccinated, while others are tired of Zoom meetings and can’t wait to interact in person again. There are no guarantees, however.

“The crystal ball is very cloudy,” Cattani said.

Joe Dyton can be reached at joed@fifthgenmedia.com.

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