Managing Director,
Public Non-Profit Solutions
Average spending by office workers is set to decline in some markets by as much as 50%, here is what CEOs and city policymakers need to know about it.
Last week at a New York Federal Reserve Conference, Nicholas Bloom, Professor of Economics at the Stanford Graduate School of Business and longtime analyst of work from home trends, presented data that reaffirmed many of our suspicions – the reduction of days at the office will have an outsized impact on daytime office spending. His research is based on monthly surveys of about 5,000 workers at over 1,000 firms and interviews with hundreds of business leaders.
Bloom makes clear that hybrid work is here to stay – and the implications are significant. By his estimate, the average San Francisco office worker will spend $5,293 less per year than before the pandemic. In New York, workers will spend $6,730 less, down from $12,561. This means a precipitous decline in the amount of ground-floor retail needed to serve the daytime workforce and an inevitable softening of the market for businesses that serve the daytime office worker. Quick, casual lunch spots, coffee shops, and daytime services will all take a hit.
On a positive note, Bloom does not believe that this will result in a wholesale reduction of office space. He predicts that many firms will attempt to gather workers on the same days of the week, with a tendency toward mid-week – Tuesday through Thursday – which will require nearly as much space as they previously occupied. Additionally, “premier cities” as we call them, are in a good position to benefit from the trend towards hybrid because it offers workers access to lower-cost housing across a larger region, which enables slightly longer commutes during “in-office” days. On the flip side, city budgets will be impacted by the loss of daytime sales. Bloom estimates that taxable sales are expected to fall 4% in San Francisco and 12% in Manhattan.
So, what does this mean for CEOs and Policy Makers? In “Recalibrate Reality”, a webinar series hosted by RXR CEO Scott Rechler, Bloom laid out a few insights for CEOs and policy makers – to which we have added our own Streetsense insights.
– In the short run, the recommendation is that CEOs run a “vanilla hybrid” of 3 days in the office, 2 days out for about six months, followed by a survey of employees and see if it’s working. He emphasizes the need for a survey, because preferences for work from anywhere correlate with demographics, with a preference for remote and hybrid work highest among those with children. And in that respect, CEOs are not typical employees, so survey help to both illuminate the needs of the workforce and ensures that decisions are defensible.
– For municipalities, Bloom recommends that city leaders accurately and realistically forecast tax revenue assuming budgetary impacts, followed by a managing down of expenditures. He also recommends thinking about subsidizing public transport, particularly rail systems, because if they go bankrupt, more employees will take to their cars, causing gridlock.
– In the short term, there will likely be a need to work with property owners to “camouflage” short-term vacancies while contingency plans are made. These offer other opportunities for activation and a tactical shift in who is visiting downtown and why. Shopping center developers already utilize this strategy with some frequency. When the Shops at Hudson Yards, a 750k sf shopping mall in New York’s far west side opened, owners and developers Related effectively camouflaged vacancies with interactive installation, like “I Was Here” a touchable tapestry of sequins that changed colors when a hand is run across it, courtesy of artist Laura Schniger.
– In some markets, there may be opportunities for redevelopment. In the past, the high value of ground-floor retail has prevented the redevelopment of “single story taxpayers”, underbuilt properties that often remained so because the cash flow from ground floor retail outstripped the value of future cash flow from upper floor office or residential space. Cities may look to capitalize on this opportunity to support development by offering sufficient density to incentivize a property owner to consider redevelopment.
– There will need to be a focus on activating vacant spaces. This might include working closely with cultural, educational and/or entertainment activities that drive visitation by local and regional visitors. This might include maker markets that aggregate a set of local food and craft vendors, or the installation of temporary cultural institutions in vacant retail spaces, much like the Museum of the Illusion in New York or The Art of the Brick, a Lego exhibition in San Francisco’s Union Square
For more Streetsense thoughts on this topic, download our newest publication “Navigating the New Economics of Place,” available free of charge. If you’d like more information on how Streetsense can help you with place strategies, contact any member of our Place Consulting Team.
– Larisa Ortiz, Managing Director, Public Non-Profit Solutions, lortiz@streetsense.com
– Jeff Pollak, Managing Principle, Real Estate Strategies, jpollak@streetsense.com
– Maki Kawaguchi, Managing Director, Place Strategy, mkawaguchi@streetsense.com
BACK TO LATEST
