If staying home comes to stay: the rise of telework and the decline of city centers

Pandemic-related restrictions mean a large share of American workers are now working entirely from home, many for the first time.

When restrictions are eventually lifted, employers and workers must decide how much to continue telework. Until an effective COVID-19 vaccine is available—a state of affairs that is one to two years away—many will fear going to work, and the share of people working primarily from home will remain elevated. Even after full vaccination, with the economy at full capacity, teleworking rates are likely to remain well above pre-pandemic rates, with major economic and real estate implications. Post-pandemic, cities may look very different.

Before Vaccination

Prior to vaccine availability, teleworking rates will partly depend on a twofold risk: contagion from getting to a workplace and contagion from being at a workplace. Older Americans, apparently more susceptible to serious illness from COVID-19, are more likely to prefer working from home. Thus, employers who employ many older workers may face more demand from workers to continue telework.

Commuting via public transportation contains a higher risk of contagion than walking or driving. Thus in areas like New York City, where the share of workers using public transportation is high, more workers may prefer to continue telework.

Chart 1 shows the share of workers who commute to work using public transportation. Not surprisingly, this share is highest in the NYC metro area. The gap between metro NYC and other cities is largely a result of use of the subway, probably the most crowded form of public transportation. Almost one in five workers in metro NYC commutes via subway. In Washington, DC, ranked second, this share is less than eight percent. In only five metro areas do more than two percent commute via subway.

The chart also shows that in many large metro areas, especially the South and Southwest, use of public transportation for commuting is tiny.

After Vaccination

Even after full vaccination, when fear of COVID-19 infection is no longer an important driver of behavior, the share of teleworking may remain elevated. In the past 15 years, the share of workers who primarily work from home has been gradually increasing, though at 3.4 percent in 2018, it remains small. Work trends change slowly. COVID-19 forced them to change quickly. A higher incidence and more frequent teleworking during the COVID-19 crisis may be one disruption that sticks.

With more full-time teleworkers, companies will benefit from a reduced office space cost, fewer limitations in hiring across regions, and better preparation for future pandemics or even extreme weather events. Employees will benefit from reduced commuting time and cost and from additional work-life flexibility.

Trends in telework before 2020 show that the share of full-time teleworkers differs widely across occupations (Chart 2). Pre-pandemic, most acceleration occurred in high skilled white-collar occupations. The fastest growth was in computer-related occupations, rising from about three percent in the early 2000s to over nine percent in 2018. Business, financial, and management occupations also experienced rapid growth in teleworking.

Among healthcare practitioners and education professionals, the share of teleworkers is still quite small, though growing. As expected, blue-collar and manual services workers experience the lowest share of teleworking.

To predict where teleworking is likely to become a norm, it is useful to look at the occupations where it is prevalent. In many occupations, the share of full-time teleworkers is well above 10 percent (Chart 3). Decisions to allow for teleworking differ among firms, but generally the following determinants have increased the probability of teleworking in the past: the ability to accurately monitor employees, the frequency of travelling (more days on the road means fewer days at the office), the comfort of employees with advanced remote working technology, the need for a quiet workspace, the independence of work tasks, and the need for physical proximity to colleagues.

How does full-time teleworking affect worker productivity? Some research shows that workers can actually be more productive while working from home. Business leaders should use this period of forced teleworking during the COVID-19 outbreak as an opportunity to learn what teleworking means for their company. How well do line managers manage remote staff? How does remote work affect company culture and employee work-life balance? How well can companies support remote workers with the technology and equipment they need? How effective are companies at activating new channels of communication (e.g., video conferencing, Instant Messaging)? What other factors will determine whether telework becomes a company’s new normal?

Downtown is Going Down

Increase in telework has major implications for cities. The more people working from home, the fewer spending time in city centers. Many Americans spend a significant share of all spending on food services on weekday lunches in city centers. City center workers also spend money there on retail and other consumption categories. Increased telework means that much of consumer spending, especially food services, will shift from city centers to the places where people live.

At some point in their lives, many Americans had to decide whether to live in smaller homes close to city centers, partly to reduce commute time, or to live more distantly and have a larger home. The rise of teleworking will make the second option more attractive for two reasons. First, commuting will no longer be a factor in the decision, eliminating a major attraction of smaller, closer, homes. Second, the need for a home workspace adds to the attraction of larger, more distant homes.

As a result, housing demand could shift away from city centers, as will demand for urban office space. Many office buildings could convert to housing. Decline in demand for urban housing, coupled with increase in supply, will pressure home prices downward. On the other hand, additional demand for both retail space and housing outside city centers will pressure real-estate prices upward.

In sum, even after most of the population has been immunized against COVID-19, teleworking rates are likely to remain higher than pre-pandemic rates. In turn, consumption patterns will change. Consumer spending, especially on food services in city centers, will be hit hard by the rise in teleworking, more dramatically before a vaccination becomes available, and to a lesser degree after. Retail shops and food services with a concentration in city centers may want to consider diversifying their geographic portfolio.

As always, those business that will react first to the changing trends, will benefit the most.