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Sunday, August 16, 2020

Going Back to Work

Sure, there was the ridiculous "New York Is Dead Forever" article that came out this week everybody is hating on twitter, but Richard Florida is supposed to be an urban planning expert that people take seriously. So it was odd to see him announcing the demise of Midtown Manhattan:

It's hard to see what Florida could think was "industrial age" about Midtown Manhattan. Midtown was the epitome of the age of FIRE (Finance, Insurance, and Real Estate). Its development was New York's coming of age as a post-industrial city. 

There has long been a reason that so many people have continued to commute into Manhattan to work: it is a center of specialized work that draws on the entire metropolis to assemble teams with the necessary skill sets. Additional workers are drawn in by relatively higher wages to provide support services. As long as teamwork for specialized work relies on collaborative work spaces, and the workers have living preferences and family circumstances that disperse them across the metropolis, central locations with strong transportation access will continue to draw commuters.

The big "if" is whether collaborative work spaces are necessary. The current pandemic has forced a long-lingering question about how much of the teamwork can be effectively completed through online collaborative tools. For months, offices have been forced to work remotely. Workers are logging in from their homes, joining meetings through Webex, or Teams, or Zoom, and trying to connect on the phone when they have an idea. The effectiveness of this work environment is not clear, and there are some clear disadvantages in the immediate set-up, but supposedly some companies are finding high levels of productivity.

The current trial does not even show the full potential of remote working, since many home work spaces are full of distracting children. Productivity should be higher when schools return to normal and regular childcare service resume.

On the other hand, we are only observing the short-term aspects of remote working. The effectiveness of onboarding new employees and integrating them into company culture seems dubious, and will require more time to play out. My own experience has been that true collaboration is significantly diminished. We lack the informal discussions, with coworkers joining in when they hear something interesting. I can't get a few words with somebody on the side as we leave a meeting, or gauge the right time to approach my boss with an issue that requires focus when she is in the right state of mind. And you're definitely not getting any of the benefits from stronger relationships or the creative sparks that often come from going out together for lunch or getting a drink together after work. The fact of the matter is that after a few years in our new office, we were in the process of converting mail rooms into new collaborative work areas because there was a recognized need that warranted an investment. The necessity of surviving a global pandemic didn't eliminate that need.

Businesses that believe they can make remote work function as well or better than their offices have every incentive to drop their lease and save on their rent as soon as they can. Even if they anticipate somewhat lower productivity, there may be a point where the tradeoff against the overhead savings may entice them to liquidate their offices. Some companies are choosing to move that direction already. It will take time to see how many of them do, and longer to see if they remain viable longer term. Even if the savings appear attractive to the company, it is not clear that workers will prefer spending their whole day in their own space separated from their coworkers. If it proves unattractive, companies may have difficulty retaining talent that would prefer to work for their competitors. The reactions to the New York Daily News eliminating its newsroom may be telling:

Another factor to consider is the nature of office work. Pre-pandemic, there was somewhat of a trend toward working remotely part-time and sharing the space. This might be viewed as a reduction in the space necessary per worker, but I suspect that reduced overhead allowed companies to hire a few more workers, while commuting fewer days per week could draw more commuters in from locations where they would be reluctant to endure the commute every day. There have also been trends to shrink the space per worker that may not continue based on distancing concerns raised by the pandemic. In other words, these more flexible working arrangements likely have opposing forces that mitigate the potential reductions in office space people have been focusing on.

At this moment, it is all unclear. If there are many more companies that choose to let go of their office space, though, how much does that really threaten Midtown's future as an office district? It may be destructive to the investments of many real estate interests, of course, and the failure of some landlords could throw entire buildings into years of vacancy while they go through bankruptcy and then require renovation before they can be re-let. Nonetheless, at lower prices, it seems hard to imagine there won't be businesses that see an advantage from the central location. At the same time, the continuing housing crisis in New York City is likely to continue some housing conversions that would nibble away at any surplus and help stabilize the market.

Of course, housing conversions assume continuing demand to live in Midtown. If offices are retrenchant, would people still want to live there? Why wouldn't they? Assuming there are many people who would like to live within walking distance of their job and simply cannot afford it, the office market could not conceivably shrink enough that it would not draw residential growth into vacated office space. And at the right price, there are plenty of retirees who may be interested in elevator apartments in the heart of everything the city has to offer.

Perhaps workers need a restaurant scene to help entice them to work in Manhattan? What about the contention that the restaurant scene in Manhattan is gone forever? Unimaginable! There are some many chefs in and around New York City, and others who would seize the opportunity to move here, who have been hoping for a chance to start their own restaurant. Restaurants in the boroughs that weathered the downturn through delivery orders and curbside dining may see opportunities to start an exciting new location in the city. With financing, they can move into existing spaces of businesses that faltered and start serving up new menu options to meet the demand from people throughout the metropolis and tourists from far and wide who want to go out for a night on the town.

Will businesses interested in opening restaurants or moving into Manhattan offices get financing? The financial capital has to go somewhere. Billionaires don't keep their money locked in a vault like Scrooge McDuck; they will need to reinvest it into the new companies that will leverage the existing physical capital of the city to turn a profit by providing services to the huge population that isn't suddenly disappearing in toto from the metropolitan area. 

In all likelihood, we are poised for a period of creativity. With space available and a break on affordability, there may be new opportunities for new, creative ventures to take off.

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