Publications

- October 1, 2021: Vol. 8, Number 9

The metaphysics of office space: Is work-from-home an existential crisis for CBDs?

by William Wheaton

The press speaks almost daily about the empty office space in America’s central business districts and whether this is a temporary response to COVID-19 or the new normal of downtown offices. The current work-from-home (WFH) transition is suggesting the U.S. labor market might finally be experiencing a structural change.

We can think of WFH employment as an extreme form of polycentric job dispersal — one that involves no commute by workers, and large reductions for companies in the cost of housing their workers in office space. It is unclear whether some share of the commute savings, initially accruing to workers, might eventually be split with employers in the form of lower wages. Similarly, the savings to companies in office space might eventually be shared with workers in the form of higher wages. Without getting into the details, the two “savings” together could well add up to 15 percent to 20 percent of current wages.

The end result is the physical concentration of workers in CBDs could be greatly diminished. Employment per se would be relocated to worker residences. Whatever office presence is still required would likely be maintained in the most convenient location for periodic gatherings, probably the CBD, but with much-reduced space.

But what about the often-touted advantages of physical proximity in terms of the operation of the labor market? Ironically, these should totally dissolve because companies would employ few if any workers at physical sites. When employed at home, workers could search for productivity-enhancing job changes with any company, regardless of its physical location since work is remote. Similarly, companies can fill vacancies with any worker, anywhere, all online.

Now for some caveats. First, many types of work are not suited to WFH, such as jobs that involve physical labor, the operation of machinery, in-person services, etc. Surveys suggest only one-third of all jobs have the potential for WFH. Second, for those industries and occupations where WFH is applicable, its adoption should be most widespread in locations where office rents are high, and the journey to those buildings is long and arduous. So, for office space, buildings in the CBD seem far more at risk than those in suburban satellite locations. What remains to be seen is whether individual output in a WFH environment is more or less productive than when at a place of work.

The data analysis to date shows WFH variations by occupation or industry, but not  by location. So far, we have had to rely on surveys of workers, most of which do not provide information on either place of residence or place of work. Without this verification, we cannot tell for sure if WFH will have just concentrated impacts in certain largely CBD-based industries, or whether it will be more widespread. Data by building and establishment will allow us to determine if office space in general, after more than a century of rapid growth, is in fact facing its existential moment in history.

William Wheaton is founder emeritus of CBRE Econometric Advisors and a professor in the MIT Department of Economics. Read his complete article on this subject at this link: https://bit.ly/2UJFwlC

 

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