How Remote Work Could Change City Centers

What will happen to urban business districts and the cities in which they are located in the age of increasing remote work?

About three-quarters of Fortune 500 CEOs expect to need less office space in the future, according to a May 2021 poll. In Manhattan, the overall office vacancy rate was at a multidecade high of 16 percent in the first quarter of 2021, according to real-estate services firm Cushman & Wakefield.

The shift to work from home will directly reduce spending in city centers—particularly those that serve a large number of commuters—by at least 5–10 percent compared with pre-pandemic levels, write Mexico Autonomous Institute of Technology’s Jose Maria Barrero, Stanford’s Nicholas Bloom, and Chicago Booth’s Steven J. Davis. This has already affected the sales activity and value of commercial real estate, which is a large source of local tax revenue in urban centers such as Manhattan. Small businesses and food vendors that support office workers have also been crushed by the trend.

“Part of the challenge for cities is to figure out how to make some other use of those commercial spaces,” Davis says. “I suspect some cities will succeed and others won’t do very well. The ones that succeed will have a different set of job opportunities. . . . Maybe there will be more entertainment-oriented places that will still bring people into the core urban area and that will provide jobs for people who used to serve office workers.”