May 28, 2020

Axios Cities

By Kim Hart
Kim Hart

Welcome back! Today's edition takes a deeper look at the remote-work era's implications for cities and offices.

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Today's edition is 1,487 words, a 5.5-minute read.

1 big thing: Tech trend bleeds megacities, boosts heartland

Illustration: Annelise Capossela/Axios

The top U.S. megacities boasting the highest economic growth and biggest talent-attracting companies may start losing people to other cities, thanks to the remote-work wave brought on by the coronavirus.

Why it matters: With more people finding long-term flexibility to work from anywhere, they have less reason to live in the most expensive cities like New York, San Francisco, Los Angeles and Seattle.

  • That could create a wave of rising-star cities that have already begun to attract people looking for a better quality of life.

Driving the news: Big Tech companies that have attracted hundreds of thousands of highly educated, high-paid workers to coastal job hubs are leading the shift to a more remote, dispersed workforce. And many workers are eager to take advantage of the flexibility.

Reality check: The shift from major tech hubs to other places will not lead to a seismic demographic shift overnight, and the workers eager to find affordable housing and more space are still likely to choose other sizable cities with strong economies and amenities.

  • When the economy starts to recover, the largest employers are still going to dominate hiring.
  • "Maybe they'll decide that their next office expansion isn't in New York City, it's in Dallas. But it will probably be within the top 20 markets," said Suzanne Mulvee, senior vice president of research and strategy at GID Real Estate Investments, during an Urban Land Institute webinar.

Still, a redistribution of sought-after knowledge workers beyond the biggest 5–10 cities will go a long way in lifting up regions that have been left behind.

  • It could also help reverse a decade-long brain drain from heartland region cities like Kansas City and St. Louis, as well as post-industrial cities like Pittsburgh and Detroit.
  • "Even if 10–15% of Big Tech employment begins to occur elsewhere, I do think it will have, at minimum, an incremental effect that will potentially tamp down some of the pressures in coastal superstars and benefit the next echelon of places," said Mark Muro of the Brookings Institution.

Between the lines: Up-and-coming cities have long tried to attract companies to boost their economic fortunes and tax bases. Thanks to remote work, cities now have to focus on attracting workers.

  • "This is what has changed: The tech workforce is up for grabs," said Patrick McKenna, founder of One America Works, which aims to connect tech talent with job opportunities outside of Silicon Valley. "It's like a jump ball for the workforce of the future."

The bottom line: Corporate headquarters are staying put — Google and Apple aren't about to close up their Silicon Valley campuses. But there will most likely be fewer people working there full time.

Read the whole story

2. Yes, but: Working remotely has downsides
Data: Reproduced from Prudential/Morning Consult "Pulse of the American Worker Survey"; Chart: Axios Visuals

Many employers and remote workers are generally satisfied with the current work-from-home arrangements and expect to continue for the foreseeable future.

Yes, but: The downsides of remote work — less casual interaction with colleagues, an over-reliance on Zoom, lack of in-person collaboration and longer hours — could over time diminish the short-term gains.

  • "The longer we remain fully remote, the more difficult it is going to be to mitigate a rate of decay in culture," said Rob Falzon, vice chair of Prudential and architect of Prudential’s Future of Work initiative. "That should be keeping leaders up at night."

By the numbers: A majority of U.S. remote workers (59%) report feeling as productive as they do in the office, according to a Morning Consult survey of full-time workers on behalf of Prudential.

  • 69% say working from home allows them to make more time for self-care, and 54% want to work remotely in the future.

The other side: More than half also report feeling less connected to their company (55%), more stressed in ways that negatively impact their work (46%), and working more hours from home (47%).

How it works: "Our ability to work well remotely is fundamentally based on the fact that we already established strong relationships with our peers," said Falzon. "So when you get on the phone or a video conference with them, there's a history there that allows you to be very effective in your communication, to read body language, even virtually, and be productive."

  • Yes, but: Over time, that goodwill with colleagues can break down without social, offline interactions to reinforce the relationships. And new people hired during this period of all-remote work don't have the benefit of building those connections.

Go deeper: How the new workplace could leave parents behind

3. What reopened offices will look like

Illustration: Sarah Grillo/Axios

The long process of reopening office buildings after months of being shut down will require new technology, careful planning and far fewer workers than before the pandemic.

Driving the news: The Centers for Disease Control and Prevention issued new guidelines on Wednesday detailing how office buildings can reopen.

  • The short version: Face masks, handshake bans, physical distancing, daily health checks and staggered shifts.

"We are never going to have the same number of people in the office than we did before" COVID-19, said Sanjay Rishi, CEO of Corporate Solutions in the Americas of public brokerage firm JLL. "Organizations are redefining 'we' space versus 'me' space."

  • Rishi said building tenants are actively redesigning offices to allow more personal space. This includes marked corridors to direct traffic flow and removing open-area desks and conference room chairs.
  • Employers are installing digital tools: Sensors that alert which spaces are occupied, assigned elevator trips and touchless entry that doesn't require a badge.

The big question: What happens to commercial real estate in a work-from-home world?

  • On the one hand, full-time or hybrid work-from-home environments logically reduce the demand for office real estate.
  • On the other, "de-densifying" offices means people that do go to work will have to spread out, driving the demand for more square footage.

Where it stands: There's broad consensus that offices will continue to exist, even if they look different.

"The role of the office has not changed. Maybe the location may change, the design may change, but it is a place for collaboration, for innovation and creativity. ... I can see the increasing flexibility in terms of work-life arrangements, but I have not met any individual with the aspiration to work from home for the rest of their career."
— Tim Wang, managing director and head of investment research for Clarion Partners, on an Urban Land Institute webinar
4. Shutdowns are hitting minority-owned businesses particularly hard

Illustration: Eniola Odetunde/Axios

Millions of small businesses aren't expected to survive the coronavirus pandemic, and those owned by women and people of color are disproportionately feeling the pain of the economic shutdowns.

Why it matters: Minority-owned small businesses employ over 9 million people (about 15% of small business jobs) and generate more than $1 trillion in annual economic output.

  • Businesses helmed by owners of color tend to be smaller than nonminority-owned counterparts with less of a financial cushion to weather prolonged closures, per a new McKinsey study.
  • They also are more likely to be in industries highly disrupted during the pandemic, including food services, retail and personal care.

The big picture: Minority-owned businesses "are disproportionally operating in low-income communities and some of these underbanked areas where, per capita, they just don't have the same level of bank branches and bank infrastructure," said Margaret Anadu, head of Goldman Sachs Urban Investment Group, at an Axios digital event Wednesday.

  • She noted that African American business owners have not been able to apply for the Paycheck Protection Program loans at the same rate as other companies.

Still, these business owners are showing creativity when it comes to taking care of their employees and supporting their communities during the crisis.

  • In a McKinsey survey of more than 1,000 small businesses, 40% of minority-owned businesses have added services like free delivery and adjusted hours for elderly customers, compared with 27% of the overall small business owners surveyed.

Between the lines: In a striking paradox, minority-owned businesses are nearly 10 percentage points more optimistic than their nonminority counterparts about the overall economy's recovery.

  • But they were 10 percentage points more pessimistic than their nonminority counterparts about their own businesses' sustainability.

What's next: Immediate relief for small businesses can take a number of forms: grants, low-interest loans, assistance dealing with negotiations, advertising credits and deferred rent payments, said McKinsey partner Deepa Mahajan.

  • All small businesses are having to reinvent themselves with contactless payments, digital offerings and new services that appeal to homebound customers.
  • "The old business models won't necessarily work, and there's only so much that relief gets us," Mahajan said.

Go deeper: Axios Deep Dive — A reckoning for small business

5. Minneapolis erupts in flames during protests

Photo: Stephen Maturen/Getty Images

We spend a lot of time talking about the future of cities, but this is a gut-wrenching reminder that they are still beset by very old problems.

Pictured above: People look on as a construction site burns in Minneapolis last night near the Third Police Precinct. A number of businesses and homes were damaged as the area has become the site of an ongoing protest after the police killing of George Floyd.

  • The Star Tribune reported that an emotional Minneapolis Mayor Jacob Frey called for peace just before midnight. "Please, please, Minneapolis," he said. "We cannot let tragedy beget more tragedy."

Go deeper: Minneapolis unrest: One man dead amid protests over George Floyd

6. Urban files

Illustration: Aïda Amer/Axios

Rising home sales show Americans are looking past the coronavirus (Axios)

In large Texas cities, access to coronavirus testing may depend on where you live (NPR)

City workers facing layoffs say Philadelphia should tax the rich. Is that possible? (Philadelphia Inquirer)

COVID-19 lockdowns have silenced urban noise. Now it's coming back (World Economic Forum)

Inside the changing millennial home (Axios)

7. 1 fun thing: Small businesses get creative

CNN reports: "Nail salons are mailing out bespoke fake nails to their clients. Some tattoo artists have turned to selling stickers with their designs. Bartenders, hair stylists, fitness instructors and makeup artists are offering their services virtually via online services like Zoom and Instagram Live."

What's next: "Some businesses are looking to offer both online and offline services once they reopen — keeping the successful online ventures they just recently tried out."

Go deeper: Small stores rethink how to do business (San Antonio Express-News)

Kim Hart