COVID, Telecommuting and Urban Renewal

Riverfront Towers. Photo credit: Richmond BizSense

Just a year or two ago, the big momentum in commercial real estate markets was for businesses to relocate facilities from the suburbs to the metropolitan core. Young people wanted to live and work in or near Virginia’s downtowns, and corporations followed the talent. The City of Richmond snagged one prestigious tenant after another. One of those was healthcare logistics giant Owens & Minor, which in 2017 supplemented its suburban Mechanicsville headquarters with a 90,000-square-foot lease in Riverfront Tower downtown.

Now, reports Richmond BizSense, Owens & Minor has pulled the plug on its downtown call center and is seeking tenants to sub-lease the space.

The reason? The company has shifted office workers to remote work in response to the coronavirus epidemic. Employees have adapted well to the work-from-home setting.

“As 2020 progressed, the COVID-19 pandemic compelled us to reevaluate our call center operations. The performance of our call center teammates in the work-from-home era has been spectacular, and the teammates requested that we carry that new business model into the future. We have recently made the decision to exit from our call center location in downtown Richmond,” the spokeswoman said.

Futurists have been forecasting the work-at-home trend for a couple of decades now. Just as Brazil is the country of the future…. and always will be, as the famous quip goes, telecommuting was the wave of the future… and it seemed always would be. The technology has existed for years, but telecommuting met resistance in many organizations. Managers worried that employees would be distracted at home and their productivity would be hard to monitor. Advances in broadband capacity and collaboration software have addressed some of those problems.

But there’s been nothing like the COVID-19 epidemic to force organizations to adapt. Among other findings, corporations are finding that employees are working longer hours overall than before — time they would have spent commuting, they now spend on the job. The experience has not been uniformly positive, but telecommuting is working well enough that many corporations are restructuring to take advantage of it. More employees working at home means fewer in the office, which means money can be saved by reducing office space.

Telecommuting will not work for everyone all the time. Some occupations still require close personal interaction, and Zoom conference calls just don’t cut it. Many jobs, I expect, will become hybrid jobs: work at home four days a week, drive into town to meet with coworkers and managers one day a week. But there is no reason that millions of call-center jobs can’t be performed at home.

Many consequences flow downstream from the shift to telecommuting, mostly  positive. More telecommuting means fewer commuters, which takes stress off arterials, highways, and mass transit. (That’s good news for taxpayers and commuters, bad news, however, for toll roads, trains and buses that depend upon fare revenue.) More telecommuting also means less demand for office space. (Good news for corporations, bad news for property owners.) Declining demand for office space will depress commercial property values, which is bad news for local governments dependent upon commercial tax revenue.

Demand for office space will snap back as the coronavirus recedes, but I don’t think it will snap back all the way. Some of the shift is permanent because it will continue to make economic sense when COVID-19 is long forgotten.

A big unresolved question is whether work-from home portends the demise of the urban renaissance of the past decade. Is Owens & Minor a one-off? Call centers are not a typical downtown activity. They are stand-alones; they don’t take full advantage of the proximity to other businesses and professional services that central business districts offer. Bacon’s Rebellion will keep a sharp eye out for evidence pointing one way or the other.