[Real Beat] The Impact of Remote Work That Changed US Cities... Streets Without Office Workers

How Changes in the Workplace Have Transformed Cities①

Editor's Note[Jjinbit] is a shortened form of ‘Jung Hyunjin's Business Trend’ and ‘Real Business Trend.’ This segment showcases trends in ‘work’ such as organizational culture and HR systems that have changed since the pandemic. Based on analyses from foreign media and major overseas institutions that have not received much attention until now, we will deliver fresh and differentiated information and perspectives.

[Asia Economy Reporter Jung Hyunjin] Major U.S. cities like New York and San Francisco are still struggling to recover from the impact of COVID-19. The surge in remote work following the pandemic has significantly reduced office demand in U.S. urban centers, dealing a blow to the commercial real estate market. The loss in commercial real estate value in the U.S. alone is estimated to reach 600 trillion won. Although there have been reports that companies are increasingly ordering employees to return to the office amid recession concerns, resistance to this is ongoing, suggesting that the major trend of workplace change is even reshaping the appearance of American cities.

[Image source=Reuters Yonhap News]

◆ Real Estate 'Apocalypse'... Less Than 50% Return to Offices

The U.S. nonprofit research organization National Bureau of Economic Research (NBER) released a report last September titled ‘Remote Work and the Apocalypse of Office Real Estate,’ authored by Professor Arpit Gupta of New York University and others. According to the report dated the 8th (local time), office occupancy rates in the top 10 U.S. cities, which exceeded 90% before the pandemic, dropped to the 10% range immediately after the outbreak of COVID-19 and remained in the 40% range as of July last year. The researchers estimated that rental income declined by 17 percentage points from January 2020 to May last year, resulting in an estimated loss of $453 billion (approximately 578 trillion won) in the value of U.S. commercial real estate.

In the U.S., there was a strong push last year for employees to return to offices. Big tech companies including Apple, as well as Wall Street financial firms like JP Morgan, urged employees who had been working remotely to come back to the office. However, employees strongly resisted, and the repercussions continue to this day. Business Insider described the downtown areas as feeling like ghost towns, noting that most urban centers have not returned to pre-pandemic conditions.

The decrease in office workers in city centers can also be confirmed through mobile phone usage data. According to U.S. economic media Business Insider and others, data on mobile phone usage in downtown areas surveyed by the UC Berkeley Institute of Governmental Studies (IGS) showed that in May last year, San Francisco’s usage was only 31% compared to May 2019 before the pandemic. Chicago was at 43%, and San Jose, home to Silicon Valley, was at about 50%. New York was relatively higher at 78%, but still had not fully recovered to 100%.

With fewer commuters, public transportation usage has also declined. The Metropolitan Transportation Authority (MTA), responsible for public transit operations in New York City, publishes daily ridership numbers on its website, indicating how much recovery has occurred compared to pre-pandemic levels. Currently, weekday ridership is only about 60-70%. Although many companies ordered employees back to the office around Labor Day in early September last year, causing a slight increase in public transit use, full recovery to previous levels has not been achieved.

◆ San Francisco and New York Are Emptying Out

Bloomberg reported last month that San Francisco has been hit hard by remote work and massive layoffs in the tech industry. According to the report, 72% of San Francisco’s economy is driven by office-based industries. According to U.S. real estate firm CBRE, San Francisco’s office vacancy rate reached a record high of 25.5% in September last year. The vacancy rate was about 4% at the start of the pandemic and 20% in September 2021, meaning it increased further within a year. Although the COVID-19 crisis has ended, offices are becoming emptier.

San Francisco downtown skyline. The tallest building is the Salesforce Tower. (Photo by Salesforce Tower SNS)

Bloomberg noted that the iconic Salesforce Tower in San Francisco has some vacant floors out of its total 61. Companies that had leased space have left, and Salesforce itself is facing difficulties due to declining revenue and has recently been cutting staff significantly. Salesforce CEO Marc Benioff emphasized in an interview with Bloomberg, “We are living in a post-pandemic reality, which means every company must reinvent itself,” and stressed that downtown San Francisco must also change.

The situation is similar in New York. Meta Platforms, Facebook’s parent company, decided last October to terminate a lease on one office in Manhattan and partially withdrew plans to expand office space. In October last year, New York State reported tax data indicating that “while the financial services sector led office returns, many companies are still partially working remotely.” Professor Stein van Nieuwerburgh of Columbia University, one of the researchers who authored the NBER report, told The New York Times at the end of last year, “We see many tenants not renewing leases or signing leases for less space as many move to full remote work.”