Central Business Districts: Out of Office

Summer at work brings some of my favorite meeting requests: Interns asking to learn more about my role and career journey. I was once an intern, too, and I’m happy to provide mentorship. But as I retell my story lately, I notice one detail that I had never dwelled on before: the entirety of my professional and academic progress has played out in a radius of about one mile, in and around the Chicago Loop. Working at home during the pandemic was a brief hiatus.

Now, I am commuting downtown again, but not five days a week. Many others have not returned at all. Without the same corps of office workers, will central business districts return to their former glory?

Speculation about reopening led headlines in 2020, and actual reopening made 2021 a boom year. But return-to-office plans encountered many obstacles as new COVID-19 variants raised fear of contagion. After the Omicron surge to start the year, most forms of activity have settled into steady patterns. But while leisure destinations have recovered to their pre-pandemic levels, offices are a far cry from their old levels of activity. This year, we are going everywhere but the office.

Chart: U.S. Activity Levels vs. March 2020 Baseline & U.S. Office Real Estate

Two years of working from home demonstrated that business can carry on with a dispersed workforce. And the benefits of remote work are significant: employees can achieve a better work-life balance by gaining some flexibility over their work hours and reclaiming their commute time. Indeed, commutes are a key differentiator between metropolitan areas where workers are more hesitant to return to office full-time and those where offices are back to their old normal.

Fully in-person professional jobs are no longer the norm. Fully remote roles have gone from niche to more common. In between, for most office workers, hybrid schedules present an optimal balance between personal productivity and interpersonal interaction. But is a part-time in-person workforce sufficient to sustain a commercial district?

At one extreme, in New York City alone, researchers at Columbia and New York Universities estimated a $500 billion “apocalypse” of office real estate value, assuming occupancy stays at the diminished levels seen through 2021. In such a scenario, not only will property investors and lenders incur financial losses, but the restaurants and other ancillary businesses that catered to nearby workers will fail. Leaders from New York to London to Melbourne are pushing for a more complete return to office to support their local economies.