The Real Price of Work From Home

cities with this pressing problem. Fewer people downtown means a lot less money being spent there every day. There's less demand for all the buildings and buses, shops, restaurants and services that downtowns are built around and can't survive without companies. Politicians, urban planners are now taking a hard look at how their cities can change to adapt to a new reality.

Reporters Emma Court and Donna Borak have written a big story about what all this looks like for New York and other cities too, and they're here with me now from New York. Donna, let me start with you, and you began reporting this story. What is it that you wanted to find out? When we began this reporting project, like, we wanted to be able to answer the question of what was the economic impact of remote work in Manhattan right?

And we wanted to be able to show in more tangible, concrete ways, how the daily rhythm of life had changed across the city. We know that wridership is down. We know that people are not badging into the office nearly as often as pre pandemic. You go downtown, it's not nearly as vibrant, you know, as it once was. But what does it really feel like on a Monday in Manhattan versus a Thursday, And like, does it really matter?

You do see this sort of clumping around Tuesday, Wednesday, Thursday in New York City, you know, people are in the office, and we've seen that. You know, we use a ton of data for the story, So we saw this trend pretty black and white in a variety of ways. We saw it in black card data, so for people who are expensing business rights to work, we saw them sort of coming in in force on Tuesday, Wednesday, Thursday.

We saw it in subway data, we saw it an office badge data, we see it in foot traffic data. And so I think, you know, we feel really confident after looking at all this data and really crunching the numbers to be able to say, this is a big

trend that's happening. You know, people are all wringing their hands about hybrid work, but the reality of it is, at least in New York and in many parts of the country, people are back in offices, but it's extremely uneven, especially at the start and the end of the week. And you know, we have to think about what that means for cities, for their economy, means for offices for workers.

That does have economic effects, and you know, cities are only beginning to sort of grapple with what that means for them. Sure. I mean, we're even seeing this at like Sweet Green and Chopped, the popular lunch places where you get a salad or something exactly right. Even just standing in line, you're overhearing people talk about, well, what's your three day, like when are you coming in? Are you coming in on Tuesdays? Is Monday your anchor day?

And so we did a little bit of an experiment to find out just how long it would take right to get a Sweet Green salad on a Monday versus a peak day of like Wednesday, or Thursday. I and one of our interns at the time, Christian, went to one specific Sweet Green over the course of a week and came up with this like very scientific methodology, which is like, you know, get online by a certain time, like I think it was twelve ten pm, and then see how long it takes to get from this, you know,

getting in line to picking up your salad. And so on a Monday, it was about nine minutes and twenty seconds. There's a little longer. On a Tuesday, nine minutes and almost forty seconds. Wednesday, whopping, thirteen plus minutes. Thursday actually a lot shorter, about six minutes, and on Friday it

was just four minutes. And I think, you know, this kind of speaks to like, if you are, you know, so bold as to go into the office on a Friday, you will see there are no lines for lunch, your subway car is not going to be busy, and you you know, kind of reap the benefits of that. But the businesses around you and the other kind of systems reliant on commuters certainly don't. Some of this kind of gets out. I think what the heart of this story is really, which is, you know, there's been a lot

of handwringing about what does it all mean? Right, people are not in offices the way they used to be. Why does this matter? A couple of I think insights that we bring to the table that hasn't been sort of sharply looked at before. Is one this difference by day of week, which I think everyone is observing if they're in the office in a big city. And then to sort of like what is the cost of that?

And we were able to come up with a number to sort of figure out how much this is costing New York City or specifically Manhattan in terms of you know, sales to businesses like Sweet Green that sort of weekday warriors favor, right, and uh, you know, to transit systems because there's like misfares for instance, and all these other you know, knock on effects of me working from home on a Friday. It doesn't seem so bad, but in

mass an aggregate that really adds up. Our reporting and analysis show that worker spending has reduced by at least twelve point four billion dollars a year in Manhattan alone due to remote work. Down in your story, you write that to get that number, you asked for help from a professor. His name is Jose Maria Barrero and he is at Mexico's Instituto Technological Autonomo and he's also part

of Stanford University's Work from Home research groups. So how does he sculate this in Barrero and his colleagues had asked in their survey as part of their work from home research, what workers had estimated they were spending on a weekly basis on meals, shopping, and entertainment near the workplace a year prior. So this research really was closest to to get a sense of what were people spending pre pandemic. Using that number, he was able to show

how much less workers were spending. By adjusting for a thirty percent reduction in return to office that ends up translating to about four thousands, six hundred and sixty one dollars per person per year in Manhattan. They calculated similar analysis and other major cities, including San Francisco, which was just over three thousand dollars a year per worker that was being lost due to remote work, and in a city like Chicago just a little over. So we came

up with this number for New York. But it's cool about you know what jose has done and his colleagues at w FH Research Group is that they also came up with all these estimates for how much in person work has been reduced in all these other cities in the United States, and they came up with spending calculations, you know, similarly per person per week reductions and spending

for all these different places. So it's really interested to see this list because at the top of it is actually it's not New York, it's Washington, d C. Interestingly, with a thirty seven percent reduction in person days. And that's probably because you have all these federal workers who

have lenient work from home policies. And in fact, the mayor of Washington, d C, Neuraler Browser, has been kind of begging the Biden administration to require federal employees to get back to work so that they can make up the loss money exactly. And in fact, in New York, Mayor Eric Adams has been a huge proponent of in

person work. He's you know, has federal employees in the office, you know, depending on their jobs obviously like you know, during the week, um, and it's been a big issue because people don't really want to be in fun days a week the way they were used to before. So, yeah, do you see at the top of the list, followed by Atlanta, number two, Number three is Phoenix, Number four is l A, New York City coming in at number five, but it's very similar to l A with a thirty

three reduction in person days. Then San Francisco, Boston, Miami, Chicago, Dallas, Philly, Houston, And so we're seeing this happening all over the country where cities are taken big hits because people aren't coming downtown as much. Yeah, and we're seeing it all over the world in fact, but you know, their data was pretty u S specific. So we also have the spending reductions.

And even though New York is only sort of number five in terms of reduction in person days, it's number one in terms of spending because New York is expensive. So New York is at the top of the list with a reduction of four thousands, six hundred and sixty one dollar per person per year. L A is four thousand, two hundred d C is closer to about four thousand.

Atlanta is three thousand, nine hundred and so on. But we thought it was a really interesting kind of window into sort of how cities are getting impacted by this trend,

and you know how big a hit they're taking. There is a so what to all of this, Right, they have ripple effects of causing a decline and consumption of food and beverages, right, transit rides impacting small business owners, lowering sales tax revenue, transit operating revenue, which we're clearly seeing in New York with the m T a shortfall, and those drop offs have been especially acute as our reporting is showed on Mondays and Fridays, right when employees

have shown the strongest preference to work from home. And so cities really have to figure this out. The importance of these revenue sources varies from city to city in some cases for cities and regions, the US is there so urgent and are just requiring immediate fiscal help in

the very near term. And even if you look at New York City, Eric Adams ruled out his hundred and three billion dollar budget and is already projecting tax revenue shortfalls in the out years, like, yes, we can balance this year, but there's going to be a lagging effect to the impact of all of this. So all that money has to go somewhere. It's not that people aren't spending at all anymore, they're just spending closer to home

when they work from home. And so we are seeing, you know, MasterCard has this really cool kind of data and it measures in store and online retail sales across all forms of payment. So this is literally New York City spending data that they have, which is such a cool data source we found. And what we saw in their data is that you know, Manhattan growth in like in certain months like September, versus that retail sales was growing,

you know, a little bit, but not a lot. And then you saw in the outer boroughs higher levels of growth relative versus in Manhattan, and I think that tells us, you know, we don't know obviously exactly what's going on, but we were looking at week days and so we believe what's happening is that, you know, work from home is providing an economic benefit in these other parts of the city. Emma and Donna Lease stay with me, will

continue talking after the break. Donna, Emma, you've painted this very vivid picture of how cities are being affected by workers not coming into the office as much on certain days. So the big question now is what are cities actually doing about it? Businesses affected mass transit. You have lots of office buildings that are standing empty or underused part of the week. How is this affected cities and like

sort of why is it so important to cities? Cities really care about this because for one thing, they use, you know, tax revenue from consumer spending to fund the city. They also care about it because another big form of revenue for cities is income taxes. And if I don't have to live in New York City because I only have to be in the office one time a week, and I can, you know, take the hit of a two hour commute from some other state, maybe I'm going

to move away. Uh. And in a city that's as expensive and difficult to live in as New York and many cities are expensive and difficult to live in, that is a big existential risk. What is the point of living in New York City if you don't really have to live there and you're paying a big price? Yeah, So, I think for city officials, the big shift to work from home has really increased the sensitivity of the local

tax base. So people residents in New York are going to be a lot more attuned to the quality of local governance, the quality of local public goods that are being provided to the people that live and work here. So the stakes are really high. So if you have a city that gets it right, either by virtue of a great functioning political system or is just endowed with the kinds of amenities that people value, like here in Manhattan, those cities might be like well positioned to benefit from

work from home. But for the cities that don't get it right, like due to a number of factors, whether they're economic or political reasons, some researchers worry that they may face a potential doom loop right as downward spiral where residents leave and inward commuters diminished. I think are reporting has shown that really the economic benefit of having

these inward commuters into the city is incredibly important. And so there's this monumental task that policymakers are now faced with, and they're trying to work out how to best make this transition happen, which they anticipate are going to take years to achieve, and what does it look like? What changes?

Because there's a thing happening now in a lot of cities where politicians answer to it is to try to force people to get to come back to work five days a week, because that's what the system is set up for. But it doesn't seem realistic. A lot of workers they're saying, well, why should I have to pay to sustain the system that no longer works for me? So change will have to come. What does it actually look like? City officials right now are really trying to

wrap their arms around possible solutions. Office conversions is one of them. You know, as Emma mentioned, this is a very difficult undertaking. There's ten million square footage that Mayor Adams thinks is like something that could be repurposed to get people back into downtown so that they're not just there to go to the office, but they're living and

going out to restaurants and helping support small businesses. How To, it's going to be really tough, and we don't really want to overdo the office conversions because you still need office buildings to be there as an like an economic engine of growth for the city. The one thing that I also want to add on to this, like with

the rise of office vacancies. Right so, because we have this like stark contrast from the old ebb of daytime population surges in the middle of the day, you know, you end up having these declining office rents that reduce the value of commercial buildings and ultimately end up negatively impacting property revenue, which is such an important part of

the city's livelihood. So some of the researchers at Colombia n YU have modeled this drop in office market value, which their estimating could cost like five billion dollars in annual loss tax revenue, or really five percent of the city's budget. That is a significant chunk. Having that five percent of the city's budget be eaten a way because of office building depreciation. Market value depreciation, I mean, really

eats into the coffers of the city. But there's a big hole that will be left to be filled, right that you need that additional tax revenue to fund schools, to fund the rats are so that like the streets are clean, you know, pick up trash, policing, all of these things that are also at the crux of you know what Eric Adams has to wrestle with in order to even create a feeling of economic recovery, right that the city is back, that they don't have these ongoing

issues for every different piece of the puzzle, there's perhaps a different solution. One thing we've heard from Sweet Green is in these stores that have been really hard hit from this, they're actually trying to renegotiate their agreements with landlords so they can instead of paying sort of fixed rent every month, maybe they can do it as a

percentage of sales. For instance. Um, you know, with the m t A, with these big kind of budget gaps that they're facing down, you know, they've said, unless we get some more money from you know, the city and state, we're going to need to cut service. And in fact, they are already cutting service on Mondays and Fridays. They're planning to on several lines that you know, largely connect

Manhattan and other borrows. You know, there's a lot of emphasis by city leaders trying to inch your way back to what things look like in and I think something we found really fascinating from this reporting is might there be another path forward, for instance, by leaning into more

of that outer borrow silver lining that we're seeing. And so I think what's really interesting about kind of putting some numbers on these problems that hopefully helps city officials, business leaders, everyone else find a way to take a path forward and create a better way for the city to recover. Emma Court, Donna Bora, thanks so much for coming on the show today. Thank you so much, Wess, it's been a pleasure. When we come back, we'll talk

about ways cities can reinvent themselves. So what are some of the things cities can do to meet all these changing needs and not go broke? Tracy Hadn't Low thinks about these questions for a living. She's a fellow at the Brookings Institution and her research focuses on commercial real estate and how cities can become better places to work

and live. And she joins me from Baltimore. Tracy, if employees won't come back five days a week, and it seems like in a lot of businesses where physical presence isn't required, that seems to be the new way of doing things. How are cities going to have to adapt? We have a lot of office buildings which will no longer be needed. You have a lot of businesses that can't make as much money. So I guess what we're looking at down the road or cities changing as they

always do. What sort of changes do you see? So a trend that was going on before the pandemic that has certainly been accelerated is that employers are consuming fewer square feet of office space per worker. That's been declining in the top ten U S office markets for over a decade, and it's going to hit new low is now and it's going to hit more markets. This is going to be everywhere in the US, not just in the biggest office markets. So the question there is how

low is it going to get? Because if your employees are in the office three days a week, you still need an office. The question is like how much obsolete office space is there? And that depends on how much employers can reduce their footprints. Relatively few employers are taking those footprints to zero and going fully remote. So the question is what does the in person component of a hybrid workplace look like, how much space does it take?

And then of the remaining space, how much is now obsolete because it doesn't match these new demands for what offices have to be like and how much of it can be adapted. From a city planning perspective, when you know planning commissions and mayors and city councils start looking

down the road at their cities. What sort of things are you hearing about the way they want downtowns to change, not just office buildings, but restaurants and shops that depended on that nine to five revenue that is now no longer as big as it used to be. There's a few obvious things that cities are already doing and baking into their strategies that makes sense. So the first is

incentivizing the conversion of office into housing. So saying like, okay, you can strengthen demand for local retail, for example, by making sure that downtown is a place where people are not just between nine and five, but also five and nine and uh. And you can also do that by increasing the quality of the other amenities that are in a downtown neighborhood, like waterfronts, other high quality open spaces, places just for people to spend time, um, whether they're

working or doing something else. Right, Since uh majority of travel is non work travel, and a majority of the time in our lives is not spent at work, it makes sense that if you just want more people, then you need more nonwork amenities and activities and experiences and things. How hard will it be for cities to begin to adapt to this new reality. So was what is holding up downtowns from adapting is that of the built environment is controlled by the private sector individuals or companies who

make their own decisions about their own assets. What cities can control is what's happening in the public right of way, and there are huge untapped opportunities in most cities to rethink that, not just in terms of high quality open spaces, but traffic safety, and to think about supporting retail, for example, by reallocating space from car storage and to retail. Like there's there's plenty of opportunities there that cities can take.

But what about this that the built environment that's controlled by the private sector. Figuring out how to incentivize the owners of these assets that are located at the heart of our cities. That is the big question right now of how to motivate these players to think differently about how they use their assets and put them to work. If we make adapting buildings really hard to do, people just won't do it and they'll just walk away, like

there's always another option. What's going to happen with some of these office buildings is like there is going to be a wave of foreclosures, people are just going to give the keys back to the bank, and you know who's really going to do nothing with it? Banks? Are there tax incentives or there other things that cities are already starting to offer to make those switchovers. Yeah, very

few office buildings are a hundred percent vacant. Even if they're half empty, that means they're also have full So when you're talking about an office building, you're talking about an income producing asset that has current tenants in it. First off, the motivation is low for the owner to do anything with it because it is generating income, maybe not as much as it used to, but if you wanted to do anything else with it, that would come

with costs. So that's a disincentive to do anything different with it, especially when you do have some revenue. So in terms of incentivizing it, that means that the carrying cost of the vacant space has to increase, and the trick is increasing that carrying cost in a way that doesn't further disincentivize the owner from actually doing anything with it and investing in the property. Doing something different with

the property attractive. For example, Pittsburgh and Harrisburg in Pennsylvania, both have a land value tax system in which they separately acts the land under a building and the building itself. So even if an office building is dwindling in value as it becomes more and more vacant, the land and the location remain valuable, and that increases the carrying cost of the asset because you can't escape the land tax.

I was speaking to a couple of my colleagues earlier about how all of this is playing out in New York City, which of course is you know, sort of the center of attention a lot of the time whenever it comes to real estate, and in New York and other big cities, one of the huge complaints is no one can afford to live there, and so it's hard to live where you work. Do you see this as being an opportunity to change cities into places where people

can actually afford to live and work. So I don't think that converting offices into housing is going to make a meaningful down in the housing crisis, because we were talking about a pretty small number of units relative of to the need that is out there. What it can do is revitalized downtowns as places by bringing more people into them, and everyone should have that chance, not just

the people with the most money. So in terms of policies and incentives that cities can offer in order to encourage the highest and best use of these locations, I think there's a strong argument to be made that incentivizing the production of housing, including affordable housing, and including housing for particular communities of concern that are concentrated downtown, like people experiencing homelessness, there's a clear case to take these

underused real estate assets and serve a greater public good. So I think that we will see more policies incentivizing the production of housing and affordable housing in downtowns. And I think that there's a role for the federal government here too. Just like the federal government offers tax credits for the preservation of historic buildings, why not offer a tax credit for the recycling of buildings into affordable housing.

As someone who looks at especially commercial real estate and how that's changing all the time, look down the road for us in I don't know, three years, five years, in cities like Baltimore and New York Chicago, what looks much different than it looks right now. I Mean, my greatest fear is that nothing looks different, and that cities enter generation of decline because of the lack of dynamism in the real estate sector that prevents the built environment

from adapting in a timely way. That is my greatest fear. My greatest hope is that we see uh boom in population. We see all kinds of new housing downtown, that we see right of ways reimagined from being enormous channels for commuters into um live work play spaces for people, and that we see office buildings incorporating some of the comforts of home with all of the important things that we need for work, like spaces to collaborate and incredible connectivity.

Tracy had Low, Thanks so much for talking with me today. Thanks Wes. You can read more from Emma Court and Donna Borak at Bloomberg dot com. Thank you for listening to us here at The Big Take. It's a daily podcast from Bloomberg and I Heart Radio. For more shows from my Heart Radio, visit the I Heart Radio app, Apple Podcast, or wherever you listen. And we'd love to hear from you. Email us questions or comments to Big Take at Bloomberg dot net. The supervising producer of The

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