Grim Prospects for New York City as Few Office Workers Return Post Lockdown; How Hard Will Other US Cities Be Hit?
We’d anticipated a difficult adjustment to life with Covid-19 for New York City and potentially other large American cities. A new Wall Street Journal story confirms our take and if anything, may be more grim. Restrictions of office workers returning to their posts end tomorrow, but the Journal’s sources estimate only 10% to 20% will return.
And for the most part, this isn’t a short term “Get the bugs out of getting them back” phase, with many more expected to return soon. This low level looks likely to the new normal for at least the next few months, with increases from these levels expected to be measured.
Before looking at the impact on New York City and other dense urban centers in the US, the fact that work from home has worked at all calls into question many heretofore unquestioned norms of office like, like the true utility of having workers on premises. How much of formal and informal information-sharing is actually productive, as opposed to gossip and political jockeying? For instance, the pre-Carly-Fiorina Hewlett Packard was cognizant of the potential for meetings to be time-wasters, and required that they be held with all participants standing up.
Conversely, even though in-peron collaboration is usually more efficient (think of programmers sitting next to each other looking at the same screen), how much will actually be possible with new distancing rules?
Rethinking the utility of a day at the office isn’t just a New York City issue. From the Journal:
But many firms say having employees work from home has been better than expected and are in no rush to get back to the office. In a recent global survey by trade group CoreNet Global, just 15% of companies said their office occupancy will be back to pre-pandemic levels within six months and 38% said it would take more than a year for everyone to be back.
Of course, a potential negative is that if remote work continues to be common after Covid-19 has been tamed, it’s not hard to imagine that most employers engage in more intrusive worker monitoring. But you might also see some interesting side effects. Harvard Business School for decades analyzed what personal and demographic factors correlated best with starting and career pay. One factor was the biggest predictor: height. Hard to project that over Zoom.
But back to Covid-19’s effects on New York City. The Journal article describes how traders are particularly eager to get back, and how real estate firms are eager to project that it’s safe to get back in the pool by bringing their full contingents back. Particular CEOs also volunteered that they believed in the value of having employees present:
[Citigroup] CEO Michael Corbat has said he is a believer in office culture. Citigroup pre-pandemic had knocked down walls in its offices to encourage collaboration and chance meetings, what Mr. Corbat calls “constructive collision.”
Yet Citi expects to have only 5% on premises in New York as of July 1.
Banks are more eager than other concerns to get staff back on deck. What is striking is that some industries that are perceived to be social, like ad agencies, have put themselves in the slow lane. From the Journal:
Twitter Inc., which last month told employees they can work from home indefinitely, said it won’t reopen its New York office on Monday. Ad giant Interpublic Group of Cos., whose agencies employ nearly 10,000 people in New York City, has told its employees they would continue to work from home until at least Labor Day. Omnicom Group Inc. said it would wait between two and four weeks to begin the return to work. Even then, employees won’t be required to return to the office if they aren’t comfortable, said a spokeswoman for the ad giant.
In our previous article on New York City, one reader asserted confidently that the wealthy who had fled to the Hamptons expected to be back in the fall on a “business as usual” basis. It appears that not all rich people think the same. From Peggy O’Neill in the Journal’s comments section:
My daughter works in the Art business in NYC. Many of the gallery owners, executives at Christie’s/Sotheby’s have migrated to their second homes in the Hamptons. A sizeable percentage of them have enrolled their children in schools there. Many will not return to NYC for the foreseeable future, if ever.
There are many virtual art showings.
Oddly, the article does not mention concerns about commuting as a reason to be reluctant to turn up; the story is employer-focused, discussing new office place practices, like plexiglass separating work stations and fewer chairs in conference rooms. But it also gives an early reading of the hit to New York City finances. Recall that we’d warned that emptied out office districts would result in a lot of closures of restaurants, coffee shops, and retailers that served their workers. Again from the Journal:
New York City stands to lose 475,000 jobs over a 12-month period starting in the second quarter, the New York City Independent Budget Office estimated in April. It projects sales-tax revenue will drop 36.4% in 2021 compared with its pre-pandemic projection.
Note that sales taxes were projected to provide $8.3 billion out of a total $69 billion in New York City revenues. But bear in mind that it isn’t just sales taxes that will take a hit. Property taxes are the biggest source of income, and major commercial landlord are aggressive about negotiating (and suing) for lower appraised values when their rent rolls fall. The New York City general corporation tax is based on business revenues, which will fall. So the expected percentage fall in sales tax revenues is dramatic, but don’t think this is the only hit the city will take.
How uniquely bad is New York City’s situation? On the one hand, it has (or had) the biggest daily commute of any US city, and is physically incapable (both from a road and parking standpoint) of handling a big shift from the Metro North and the Path to cars at anything dimly approaching its old level. Boston has a much smaller but also driver-unfriendy central business district, and its colleges and universities will take big budget hits near term (Harvard is already offering early retirement packages).
As we indicated before, other cities may wind up in similar places via different routes, such as ones like Memphis that made a big strategic bet on tourism. I also what happens over time in states where Covid-19 cases are relentlessly rising yet the citizens aren’t masking up or adopting much in the way of other safe habits. For instance, from Alabama Political Reporter last week:
Since the first case of COVID-19 arrived in Alabama in March, Dr. Donald Williamson, the president of the Alabama Hospital Association, has said he’s confident the state’s hospitals can handle an influx of coronavirus patients.
That changed Tuesday morning, when the state recorded the most COVID-19 patients ever being cared for across the state and, on the same day, had the fewest available intensive care beds since the pandemic began.
“For the first time, I would have to say, I’m growing worried about the system,” Williamson told APR. Before Tuesday, Williamson has expressed concerns about individual hospitals or cities, but not the state as a whole.
Yet Montgomery, the city first to run out of ICU beds, has been stumbling all over itself to put a mandatory mask ordinance in place. It was defeated in the City Council last week, only to be implemented on a temporary basis by the mayor as an executive order until the City Council can meet again to reconsider its vote. Expect similarly stop-and-go reactions across the rest of the South, which also means it may become a disease reservoir for the rest of the US
As grim as the picture is in Montgomery, the part of the state with far and away the highest per capita infection rate is Lowndes County, with all of 11,000 residents: rural, poor, lacking in access to medical care.
And in this part of the US, the big disease vector isn’t commuter trains or meeting but church. And unlike office life, you won’t see many give that up.
So even though Covid-19 may seem to have a happy home in cities, it’s a mistake to assume that being in the boonies will save you.