Founder: Turnaround Talk
One of the most significant external root causes of financial stress over the past three years has been the transition from a traditional working environment to a hybrid environment.
While many businesses found that remotely running their company did not dramatically impact profits, some businesses struggled with how hybrid work influenced how people work, live and shop. This will be one of the biggest challenges of the next ten years.
Office attendance is down by 30%
The article pointed out that employees still spend far less time working at the office than they did before the pandemic, according to our survey. In early 2020, as they adopted remote work and hybrid work in response to lockdowns and health concerns, office attendance in the metropolitan areas we studied dropped by up to 90%. It has since recovered substantially but remains down by about 30%, on average. As of October 2022, office workers were visiting the office about 3.5 days per week. That number varied among cities, from 3.1 days in London to 3.9 in Beijing.
Office attendance also varies by industry and neighbourhood. In large firms in the knowledge economy—which we define as the professional services, information, and finance industries—employees tend to go to the office fewer days per week. Characteristics of areas with lower office attendance include expensive housing, a higher ratio of inbound commuters to residents, and a small share of retail, according to our research on US counties. Local culture also plays a role.
The article adds that there are several reasons to believe that the current rate of office attendance could persist. First, the rate has remained fairly stable since mid-2022. Second, three key numbers—the number of days per week that survey respondents go to the office (3.5), the number of days they expect to go to the office after the pandemic ends (3.7), and their preferred number (3.2)—are not far apart. Third, 10% of the people we surveyed said that they were both likely to quit their jobs if required to work at the office every day and willing to take a substantial pay cut if doing so let them work from home when they wanted. That group contains many senior, high-income employees, suggesting that they may wield influence over companies’ decisions. Nevertheless, it is not certain that the current rate of office attendance will persist; it could change, for example, if labour market dynamics shift or if research conclusively indicates either a negative or a positive relationship between hybrid work and productivity.
Up to 7% of the people in urban cores left for good
The article points out that, during the pandemic, a wave of households left the urban cores of superstar cities, and fewer households moved in. For example, New York City’s urban core lost 5% of its population from mid-2020 to mid-2022, San Francisco’s lost 6% during the same period, and London’s lost 7% from mid-2020 to mid-2021.
The main reason was out-migration. In the suburbs, by contrast, populations grew, or they shrank less dramatically than populations in the urban cores did. In the United States, suburbanization had already been happening before the pandemic, and the shock accelerated an existing trend; by contrast, in most of the European and Japanese cities we studied, urbanization gave way to suburbanization.
Image By: Pam Carter via Pixabay
The article adds that the urban cores where population growth was smallest in relation to their suburbs tended to be those with expensive homes, high office density, a high share of workers in the knowledge economy, and limited retail presence—some of the same characteristics that shaped office attendance. London, Dallas, New York, San Francisco, and Boston were the most affected. In general, US urban cores were more affected than European and Japanese ones, which tend to have more mixed-use development in which office, residential, and retail spaces exist alongside one another. The migration trends in Beijing were primarily shaped by pre-pandemic efforts to control the population size in urban cores by encouraging out-migration, efforts that were paused during the pandemic.
Out-migration from urban cores of superstar cities seems to have slowed, but it is still above pre-pandemic levels.
The article points out that hybrid work seems to have contributed significantly to out-migration. In our survey, among respondents who moved after March 2020, 20% said that their move was possible only because they could now work from home more frequently. In the United Kingdom and the United States, people who had moved from urban cores to suburbs and who said that their move was possible only because they could now work from home said that they were drawn by housing conditions: better neighbourhoods, the prospect of homeownership, and outdoor space. In Japan and China, wanting to own a home was far and away the strongest factor motivating people’s moves to the suburbs.
Out-migration from urban cores of superstar cities seems to have slowed, but it is still above pre-pandemic levels. From 2019 to 2021, net out-migration from US superstar city cores doubled; then it fell in 2022, although it remained above 2019 rates. In other words, the people who moved out during the pandemic are not moving back, and others keep leaving.
Shopping remains depressed, especially in urban cores
The article adds that as people stayed home during the pandemic, they radically shifted the way they shopped. Foot traffic plummeted near stores in the cities we studied, and online spending as a share of retail spending spiked.
More recently, foot traffic near stores in metropolitan areas has risen again, but it is still 10% to 20% lower than it was before the pandemic. A major reason for the decline is that online spending as a share of retail spending, which admittedly grew more slowly after the initial spike, nevertheless remains higher than it was in 2019.
The article points out that retailers in urban cores face particularly acute challenges in attracting customers. As of October 2022, foot traffic had recovered noticeably less near those stores than near suburban ones. In New York, for example, foot traffic near suburban stores was 16% lower than it had been in January 2020, but foot traffic near urban stores was 36% lower. And office-dense neighbourhoods in urban cores are facing even more challenges. The reason seems to be that when people come to the office less often, they shop less often near the office. In our survey, respondents in the United States who worked at the office no more than one day per week reported doing much less of their total retail spending near the office than did those who worked in the office two to five days a week.
Think outside of the box
Real estate, commercial property companies, property management companies and retailers feel the most significant impacts of the shift towards hybrid work.
There are few options open to retailers. With online shopping increasing significantly, retailers can shift their brick-and-mortar stores to massive distribution centres focused on order fulfilment, delivery and collection points. This may impact the employee base of these retailers; however, there will always be a demand for data capturers and analysts. Therefore, the disruption can be minimised if retailers focus on skills development.
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The impact on the retail space is another issue altogether. We will see a resurgence of small towns as urbanisation is minimised. Hybrid work no longer requires employees to be in the office daily, making it possible for a person to live in Nigel and work for a JSE-listed company in Sandton.
Massive office spaces will be scaled down, and it will be common to see two or three companies sharing the same office space that would have been traditionally occupied by one company in the future. Companies can also consider using office spaces for corporate training purposes.
There are several options available to companies if they are prepared to step outside their comfort zone and think outside the box. The influence of hybrid work is a massive elephant in the room that needs to be addressed. It can only be devoured one piece at a time through bold decision-making.
