The Newer Geography of Jobs
Corporate Back to Work Plans Can Map Urban Recovery
One of the big themes here is the idea that remote work has the potential to be a massive shift in real estate markets and cities. By severing the link between work and home, remote work — whether it is hybrid or fully remote — is likely to drastically reshape spatial patterns of housing, commuting, and spending. These shocks in where people live, work, and transit then have large knock-on consequences on our urban form designed to accommodate these choices.
A key challenge in this research has been trying to figure out what firms are actually doing with remote work choices, and how persistent these choices are likely to be. There is a lively debate on this front, with different data sources like the surveys by Nick Bloom/Jose Maria Barrero/Shelby Buckman/Steven Davis, the BLS, and the ACS providing slightly different estimates of remote work prevalence and its persistence.
There is an exciting new data entrant in this area from a company called Scoop which has put out the Flex Index — a new company level dataset on company in-office requirements. Covering close to three thousand firms with over forty million employees, this is a highly promising effort to gather data on the actual actions of corporations, which is crucial for determining the potential effects on commercial office buildings and urban areas.
Remote, Hybrid, and in Person
Companies are choosing between three broad categories of back-to-office plans, which have different implications for real estate:
Fully on Site. This is the default for jobs that don’t involve a computer, and can’t be easily done remotely. It’s the status quo before the pandemic, and still makes sense for many firms for reasons of culture or inertia. Even with the occasional Friday at home; this choice will entail minimal changes to real estate footprints for firms and cities.
Structured Hybrid. This is the format many companies have shifted towards, allowing workers to spend some days of the week at home and the rest in the office. There are several design elements to choose from here; including possibly requiring a minimum number of days, trying to coordinate and ensure a specific number of days in the office, or some blend of those approaches (which are tracked in the Flex Index).
Companies are generally able to still reduce office demand under hybrid work through a few different ways. Under “hot desking,” employees don’t get dedicated workstations, but instead reserve space on an as-needed basis. With the “neighborhoods” concept; offices are laid out to accommodate a mix of different users (some private space for deep work; some collaboration space) and workers pick and choose where they want to be. Other approaches may entail workers rotating into the office, depending on their job function, or even sharing space with other firms to avoid overlap on days of the week.
Hybrid work like this can potentially lend itself to increased urban agglomerations. Worker housing choice is typically limited by reasonable commuting distances, so they are much more willing to tolerate extraordinary commutes when they only have to come in a few days a week. These make trips like Philadelphia-NYC, or DC-NYC potentially viable for workers, resulting in de-densification as workers spread out across the broader metropolitan area. In turns this means that white collar workers in a much larger geographic catchment zone are potentially participants in local labor market dynamics.
Fully Flexible. This accommodates fully-remote firms, as well as those allowing employees to choose when to come in at all. Naturally, when firms pull the plug completely on office plans; they are going to cut down on their office expenses enormously, saving something like $15,000 per worker on average in New York City. From the urban side, the real big shift that you can expect to happen is workers just leaving the entire metro area entirely, to potentially shift to other metropolitan areas.
Before the pandemic, urban workers were purchasing a bundled good: access to high quality job markets, and also high quality amenities. Fully remote work separates this bundle, allowing workers to pick and choose which one they want. It turns out that many workers were only getting those expensive urban amenities as a side benefit of labor market access, and given the same job, they’d rather live in a cheaper area (potentially closer to family and friends for instance).
One of the nice things the Flex Index data allows is an examination of how different firms and regions are making these three office choices. You see that firm size matters a lot: small companies — those with only a few employees — are very likely to choose fully flexible plans allowing for a lot of remote work. This fits in with other survey evidence suggesting that startups, in particular, are going remote-first.
This is a logical viewpoint. Conventional wisdom categorizes real estate leases as operating expenses, but Aswath Damodaran, a colleague at NYU Stern, suggests that they should often be regarded as financing expenses. Lease payments are similar to interest payments as they are financial commitments that take precedence over other investors. Essentially, leasing an asset is just a substitute for purchasing the asset and paying for it through interest payments backed by the asset. As a result, a company, especially a startup, is essentially diluting investors, especially the founders, by taking on leases. Startups and small companies with financial constraints can significantly extend their lifespan and operations if they succeed in making remote work a permanent solution.
In the long-run, my guess is that we are going to see startups which figure out remote work really spread these practices across the rest of corporate America. The large companies of tomorrow are the high growth startups of today, and so it’s instructive to see there what their work practices are.
For the moment, at least, you see that larger firms are instead more likely to rely on either fully on site requirements, or (especially for large firms) structured hybrid work arrangements. This changes a bit at the very top of the employee distribution, which has a bit more fully flexible jobs than you might otherwise expect. This is partially driven by interesting patterns among the health/biotech space. Small biotech firms basically have strong in person demands — lots of wet lab space — but large health insurance and pharma companies seem to have a little more room for fully flexible work plans.
The Geography of Remote Work
The Flex Index data can also be used to map out the geography of remote work plans based on the location of a company's headquarters. By analyzing the fully flexible remote plans, it becomes evident that they are heavily concentrated in the West Coast, including California, Washington, Oregon, Idaho, Montana, and Colorado. There is also a significant cluster of fully remote companies in the DC area, which would be even more pronounced if federal employers were included (e.g. 85% of all patent examiners are fully remote). Other areas with notable remote work trends include parts of the Midwest and Northeast, such as NYC and Boston.
Now, a natural question is whether this regional pattern just reflects some of the industry or size factors I just mentioned. However, if those variables are controlled for and the regions with higher or lower levels of fully flexible work plans are plotted, you see the same pattern. This suggests that there are persistent geographic factors, beyond the composition of firms, that appear to influence remote working decisions.
Then we have the states that have a lot of structured hybrid work. This graph is more a story of the Sunbelt — the booming cities in the Southeast, Florida, Texas, and other Midwestern states in general.
Finally, you have the places where fully in person work is sticking around the most. Here some traditional Northeastern cities in the NYC area, as well as Chicago and DC seem to pop up. Many of these include financial firms, some of which have gone back to more of an in-person presence than before.
Connecting these dots, I think you can see some broader patterns for the future of different office and real estate markets across the country:
West Coast Cities are facing big shocks. They are heavily involved with tech firms and startups that have adopted fully remote work; and also just generally seem to have local cultures which are shifting towards more fully flexible work. That’s true for places like San Francisco, but it’s really a trend you see broadly across the region including Los Angeles, Portland, Seattle, and Denver. These areas are going through a radical transformation in which firms are going fully remote, office demand is dropping substantially, and workers are free to move wherever they like.
You see the impact of that in migration data for the Bay Area here. One thing to keep in mind is that urban areas in the US have actually always had a lot of net domestic migration, which are continually replenished by net foreign migration and natural births. This general pattern changed briefly in the post-GFC window, when you saw some net domestic US migration into cities. That was partially driven by “push” factors — the post financial crisis shutdown in housing production — as well as new “pull” factors reflecting high skilled scalable service job growth in urban clusters, as well as new amenities (this is when “hipsters” became a thing; speakeasys and espresso joints really took off).
This is precisely the era that Enrico Moretti hails in the New Geography of Jobs — but that urban thesis stops being true soon after the book’s publication around 2015, as Jim Russell has noted. After that point, cities like San Francisco or New York started to see increased domestic net outmigration, which still roughly balanced by foreign immigrants, even with the lower post-Trump numbers. This pattern then drastically changed in the pandemic — you have the combination of a shutdown in net foreign migration, further secular decreases in births, and historically unprecedented increases in net domestic migration combine for a perfect storm to cities.
Some of the key factors here include the NIMBY policies of high cost urban metros, which didn’t allow for enough housing to be built, meaning that workers in these cities are giving up their high wages in rents. The amenity value of these cities also started to suffer, with pandemic shocks and crime increases. And finally you have pull factors from the rest of the country, which has been steadily building more housing and getting the sorts of fancy cocktail and coffee establishments to meet those worker amenity demands. That led to this exodus from those cities. Among Western cities, you actually see a bit more fully remote work in Seattle/Portland than San Francisco — and in tandem with that, the outbound moving rates seem to be actually higher in those Pacific Northwest hubs than parts of the Bay Area.
The Continued Rise — And Sprawl — of the Sunbelt. The flip side here is the presence of cities in places like Texas or Georgia which have not gone fully remote, but are instead sticking to fully in-person or structured hybrid work plans. But remote work is not leaving these areas untouched either. Because many workers have structured hybrid schedules, they will likely be able to commute in maybe 2-3 days a week to their offices in Dallas or Miami. In turn, this implies that urban agglomerations might stretch out even further in these areas.Average SF of office space absorbed per new “office using” job in Charlotte: 2016-2019: 187; 2020-2022: 32
Office demand is still hit in these cities — Chuck McShane, with CoStar and using their data, argues the square footage per new office employee is down substantially. But overall, you see in CBRE data that these are the types of metros that still see some demand, relative to really declining office trends in other parts of the country.
To be sure, the Sunbelt is not a monolith — it will be a patchwork of some growing regions, like maybe Atlanta, alongside some declining subregions like parts of Alabama. But the persistence of hybrid work should provide a new lease on life for Sunbelt metros. In the old days, an increase in house prices in Houston would just mean the construction of another ring of roads around the city. However, lately we’ve seen house prices go up even in Texas and other metros — you start reaching the limits of car commuting at the periphery of these metros, and would ordinarily have to get more dense. But if you’re working hybrid, maybe some of those far exurbs start to look more viable, and you can get even more real estate activity further out into the country. It’s not a future urbanists are going to be excited about, but one that offers many Americans the comforts of suburban living and frequent-ish in person work.
Uncertain Future for Legacy East-Coast Metros. That leaves other East Coast metros like New York, Chicago, and DC in a difficult position. On the one hand, like many West Coast cities they are looking at shocks to office and urban demand coming from fully flexible remote work. However, they are generally buffered a bit by the presence of fully in-person work demands, particularly in those certain key industries like finance. There’s some hybrid work as well, which is not as common in the West, which is good for New York and Chicago suburbs.
The big shock for some of these larger legacy metros is felt on the quantity side. New York City alone makes up a very large chunk of the total US office market, And so if you’re looking for the largest number of potentially distressed office properties — with office loans reaching the end of their maturity (which typically requires a refinancing), with sizable numbers of tenants with expiring leases — the team at Trepp/CompStak estimates the largest fraction of those is going to be in New York City. These loans will have to get refinanced at the top of the interest rate cycle with the least cash flow to support, and so are going to be at greatest risk of defaults and loans put back to the bank.
Ultimately though, we’re just going to have to wait and see what happens! It should be an eventful next decade. The better we keep improving our data and understanding of remote work; the more research we are ultimately going to see on its broad social impacts.
I’m on a new podcast on land assessment talking about the state of commercial real estate valuation.
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