As the story goes – once upon a time workers drove into the heart of the city to sit in an office building for 8 hours a day, 5 days a week. Every other Friday someone hand delivered these workers a paper paycheck. And as diligently as they drove into the city, they exited the city to return home.
Well, this fairytale is over. By early 2023 approximately 30% of full-time workdays are worked from home. As a result, cities are seeing increased office space vacancies. According to CoStar, in New York city the average office space vacancy rate is at a 26-year high.
Office vacancies are costly. The National Bureau of Economic Research estimated that declines in office values equates to $453 billion in value. This decline in real estate value has serious repercussions for local governments which rely on property taxes. Larger cities, like New York depend on 400 million square feet of office space to provide 10 percent of the city’s $60 billion in tax revenue.
The lack of daytime workers in urban centers is also hurting businesses, many of which are small businesses. The fewer workers, the fewer lunches, the fewer dinners and retail shoppers, causing many businesses to shutter in city centers.
Cities across the nation are pursuing ways to adapt their empty office buildings. Many large cities are turning them into apartment complexes, small boutiques and government assisted, low-income housing.
According to Harvard University’s Joint Center for Housing Studies Millennials are moving downtown and thriving. The social atmosphere and events bringing the community together appeals to a new generation. Because the traffic is down with less commuters going to the office it becomes a more amenable location to stroll and observe the uniqueness of downtown cities. The air quality is better, many times there are street markets, music festivals, and vendors to enjoy social interaction.
Given the changes and challenges the workforce has overcome in the last 10 years, it appears we may adapt to the hybrid model of work while the city centers evolve to adjust to the new working world.
This boom also resulted in a decrease in demand for traditional office space. Many employers still see the value of having a physical office space for collaboration and face-to-face interaction. Companies like Citigroup, Disney, and Goldman Sachs have slowly required a return to the physical office, however, in most cases that mandate comes with flexibility, e.g., return to the office two to three days a week. Experts anticipate that there will likely be a rebound in demand for office space, though not to pre-pandemic levels.