Shifting to metropolises like London and New York from smaller cities for work has always been a marker of growth and success. People would take pride in relocating and not really complain about higher rent or longer commute time, although in reality the sting was quite painful. Global conglomerates also aspired to keep their headquarters at megacities and urban centers.
Post pandemic, however, most businesses were compelled to adopt remote working model to ensure business continuity. Once people were forced to work from home for an extended period, everyone realized the true advantages and disadvantages of the set-up. A recent report by McKinsey has found that the pandemic has transformed work for a substantial section of the world.
In many international circles the long-term viability of remote work model was deliberated endlessly by industry veterans. Workforce of the entire world kept guessing if they would keep working from home for the rest of their lives. The McKinsey study made a number of significant revelations on that front:
- Hybrid model of remote work (3-5 days remote working a week) will persist globally in the “Next Normal”
- Number of people working remotely will grow three to four-fold globally
- Highly knowledge and skill-oriented job roles are most likely to adopt remote work model in the long term
- Advanced economies like US, Europe and Japan will have 28% – 30% highly educated people working from home
Impact on urban economies
According to the report, presently about 5-7% of the workforce works remotely on a daily basis, which will soon rise to 15-20% in the long run. While this rise might appear small at a glance, one must remember that this section of the workforce is highly paid and form a substantial part of the high spending population of the urban economies.
The impact of this shift on urban economies is thus expected to be profound. Some of which include, a sharp drop in:
- Need of public transport
- Auto and fuel sales
- Office real estate demand
- Retail sales
- Restaurant sales
A separate McKinsey survey conducted in May, found that space managers expected about 36% increase in outside office worktime – implying that the companies would need less space in office and the same will reflect in their future real estate plans. According to Moody’s Analytics, office vacancy rate in US would rise to 20.2% in 2022 as opposed to 16.8% at the year end of 2019.
Residential real estate is also likely to be negatively affected. As soon as the technology companies announced their plans of adopting remote work model permanently, the average rental of one-bedroom units in San Francisco fell by 24.2% (in comparison to last year). New York City too registered a similar impact, as it reported having 15,000 empty rental apartments in September 2020, the highest vacancies ever recorded in history.
To the contrary, real estate is experiencing a surge in demand in smaller cities and suburbs. After working productively from their homes and earning the same salary people are more appreciative of cost savings on account of simpler lifestyles, no commute and home-made food.
Shift in consumer spending patterns have also been noted – while in urban centers, sales of retail apparels and restaurant and bar earning shrunk, sales of digital tools, connectivity gear and home office equipment has increased substantially.
Whether these significant shifts will help in decentralization of prosperity from urban hubs to smaller cities and satellite towns in the coming years, remains to be seen. But at present it does appear that some important changes are in the offing and only time will tell if they will be good or bad for the world.
