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.

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17 responses to “COVID, Telecommuting and Urban Renewal

  1. Not only virus, but now realized cost savings.

    • Exactly right. My customers are seeing significant improvements in margin as a percentage of revenue even as making the top line is a struggle. New leases are not being contracted and existing leases are being allowed to lapse in some, but not all, cases. Even my customers who continue to grow are expecting the margin improvements to be permanent (if somewhat less than the case right now). As Jim Bacon writes … commercial real estate will snap back but not all the way.

      I think the four days from home, one day at the office is a long shot. If people come in on a different day of the week, then what’s the point? If everybody comes in on the same day then companies still have to lease office space. As you say, quite a bit of those savings have been realized already.

      • I’m seeing something of a bifurcation in remote work policy — certain teams (especially sales, support, and research) are working remotely indefinitely, while policy, communications, corporate affairs, and senior management look headed toward a 3-2 or 4-1 system weighted toward in-office work, though with greater day-to-day flexibility than in the past. Corporate real estate footprints may shrink, but major employers going fully or mostly remote will be rare.

        There’s considerable hot-desking in the federal contracting space as well, with teams rotating through newly-certified and deep-cleaned spaces on weekly cycles. That sort of arrangement won’t outlive the pandemic, but I’m curious to see what lessons come out of it.

        The real shift seems to be for smaller operations. I know two consultancies in very different geographies and sectors — one in DC and the other PNW — which plunged into remote work in June-July with an eye toward opening up new talent pools, to considerable success. Your comment below re: ease of recruiting is spot-on.

  2. Jim:

    You are taking a somewhat narrow view here. You see the issue as urban vs suburban. I see a potentially more significant displacement. If Owens & Minor can keep their call center personnel productive from home why hire in Richmond? There are cheaper places in Virginia and across America to find people. Why can’t people in Danville do these jobs? Shouldn’t the state government be encouraging this?

    Recruiting for subject matter experts / management positions just got a lot easier. I did some recruiting work for a bank that initially insisted on relocation as part of the deal. They had good positions available but the relocation was tough – especially given the high demand for the people they were seeking. The bank also had to pay for the relocation which can get very expensive. Then came COVID and the bank decided that the positions could be almost 100% remote. I say almost 100% because the person hired would probably have to spend a week a quarter physically at the bank. The positions were filled almost immediately.

    What I am seeing is a lot of highly paid technology people not only working from home but moving and working from new homes in new cities and states. Companies are adjusting the pay scale to align with the cost of living in the new areas but people are going anyway. I know a network engineer who just moved to Maine, a technical architect who just moved to North Carolina. Both had been living in Boston. Facebook told its employee base that the company doesn’t care where the employees work but don’t expect California wages in Alabama. Meanwhile, real estate on Maryland’s rural and small town Eastern Shore is on fire. People from Boston to Baltimore, and all points in-between, have visited the Eastern Shore and loved it. Now they can live there and still work remotely.

    Where are Virginia’s rural areas and small towns with this trend? My Maine based friend wanted to be on the water. Accomack County is on the water. My North Carolina based friend wanted to buy a horse farm. Are there small farms in southern Virginia. What about Roanoke? Seems like a place with a lot of unrealized potential. Anybody from our economic development team pitching the Facebook employees? Anybody advertising the beauty of Lee County with LinkedIn insert ads? Let me guess? No.

    • Don, you’re right, there are potential ramifications far beyond what I addressed in my post. I explored only a couple of implications. I have no doubt that your personal experience is being replicated widely elsewhere.

      I have no idea how rural Virginia localities are responding to this trend. Silence is not necessarily evidence that nothing is happening. Local economic developers are focused on corporate investment. The real action would be with local real estate agents. Are they advertising waterside lots, mountain views, and horse farms outside the state? That’s something worth looking into.

      • Check this out from Farmflip.com:

        “FARMFLIP has $266.93 million of farms for sale in Virginia with a median listing price of $180,000 or an average of $3,278 per acre. The total acreage of Virginia farms for sale is 81,420 acres with an average listing size of 137 acres. Grayson County, Floyd County, Patrick County, Mecklenburg County and Carroll County have the most farm for sale listings while hunting farms, waterfront farms, mountain farms, recreational farms and timber farms represent the most popular Virginia farm types and uses.”

        https://www.farmflip.com/farms-for-sale/virginia?msclkid=fb8cd0f5736a19e467308f5957a01b9d

        • $180,000? Sell the house in Alexandria for $780,000, buy the mountaintop farm and spend the extra $700,000 building a spectacular house on top of that mountain. Work from home and still make $250,000 per year.

          Due to decades of Richmond treating NoVa like a cash cow the quality of life has been badly diminished. Lots of people ready to leave, especially if they can keep their jobs while working from home. In other words, those jobs are moving whether the employer moves or not. Virginia better figure out how to keep those people in state. There are plenty of farms for sale in North Carolina too.

          • …mountaintop home sounds like Tazewell Virginia in my mind…had family there once

          • You’d probably need to do it soon. If it becomes a serious trend you’ll no longer be able to get $780,000 for the house in Alexandria.

      • “Local economic developers are focused on corporate investment.”

        Exactly the problem when employees can work where they want rather than where their employers’ demand they work.

        Charlottesville is booming because people figured out it’s a nice place to live . Most folks figured that out through some association with UVa. How many other nice places to live are in Virginia?

        • Staunton and Winchester have some of the best “small town downtowns” in the state, if not the nation. I’m in Charlottesville now, but my girlfriend and I are seriously eying Staunton/Augusta for our first home.

          QOL in Warrenton and Culpeper is pretty great as well, but from what I can see, stakeholders there haven’t made the switch from “optimizing for bedroom community commuters” to making those communities viable towns in themselves.

          Places like Ruckersville are situated in gorgeous country, but there’s no real town to speak of — just a few antique stores and fast food joints surrounded by farms and rentals for NGIC workers. Greene County, start putting that tax money to work!

          • Reed Fawell 3rd

            Good observations. Land use is a reflection of the culture and psychology, habits and values, of the residents of the times.

            Hence some of the best “small towns downtowns” in America – Staunton and Winchester, Warrenton and Culpeper, Alexandria too, in Virginia.

            Hence some of worst land use in America: Fairfax, Ruckersville, Woodbridge, old Route 1 and its remnants, in Virginia.

            Hence too, the Ballston / Rosslyn Corridor is a modern day miracle. Can we replicate it in different ways and means for renaissance of Virginia great small towns of 19th century, before automobile, now in perfect tune to modern times?

          • There is a reason there is “no town to speak of” at Ruckersville. Ruckersville is not a town.

            Warrenton and Culpeper are actual incorporated towns with their own town governments – not their own schools, of course, but they are able to take many (but not all) of their economic development-related decisions independent of their “parent” counties.

            Staunton, Winchester and Charlottesville are one additional [large] step away from their surrounding county governments in that they are independent cities.

            The possible development paths which lead to the “feel” of a given “downtown” are greatly affected by the legal designation of the surrounding “town”.

  3. For past 6 or 7 years at least, I have predicted on this blog the migration of many residents and workers out of large urban cities into healthy and attractive smaller cities and towns, offering higher quality of life, often at far lower costs.

    I predicted this great demographic shift based on the increasing costs of living in these congested urban places, their eroding quality of life, schooling, recreation, and convenience, particularly for raising families, in many of our urban cities and their nearby older suburbs.

    Huge and ever more difficult traffic commutes compounded these issues for the urban dweller and worker. Also, and of course, this shift of residents and workers out of the big cities was also driven by great and ongoing advances in telecommuting, and people’s habits and psychologies changing to take advantage of and adjust to those altogether new opportunities.

    These trends of dispersal had growing force LONG BEFORE covid – 19 hit. Now with Covid a reality those trends are turbo charged. Dams have broken, breakthrough in peoples’ and employers’ cultural habits and values, as well as by economics, convenience, safety, schooling and quality of life.

    But, of course, there are several important caveats, and suddenly countervailing forces at work. Urban traffic congestion is solved for now in many places. That opens up huge new opportunities, given the many inbuilt and unalterable needs of the human species to congregate in dense urban places. So these dense urban places will reconfigure and thrive, as never before, but do so in far more efficient and livable ways for all people, if reconfigured in the right and synergistic ways.

    • Reduced congestion means we can offer free HOV/HOT lanes for electric vehicles! That and large financial subsidies would make them literally fly off the showroom floor, per California.

  4. COVID is one reason for the about face on cities. Richmond had been riding the wave that it is cool to live in an urban, rather than suburban, environment. Lots of young people starting out on their careers want to live in the city. But with all the hype about city living, housing prices have soared. Many young people no longer can afford to buy or rent. .

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