Will Working from Home Kill the City?

Intel recently announced it was selling its sprawling, four-building campus in San Jose — home to 8,700 employees. It’s part of a larger phenomenon documented in September in a paper, “Work from Home and the Office Real Estate Apocalypse,” published by the venerable research nonprofit, the National Bureau of Economic Research (or NBER).
Written by Stijn Van Nieuwerburgh, a real estate/finance professor at Columbia University’s business school, the paper concludes the pandemic “has had large effects on both current and expected future cash flows for office buildings,” predicting New York City alone faces a 39% decline in office values — “a $453 billion value destruction.”
The loss has wide repercussions, starting with how the work-from-home revolution hurts other parts of the downtown economy, ultimately lowering the tax revenues that cities collect. As recently as last August, restaurant visits had plummeted from pre-pandemic levels in San Francisco and New York — down 41% and 37%, respectively — according to data from the online reservation service OpenTable (cited in NBER’s paper).
In January the Washington Post’s editorial board even devised a catchy name for the larger problem: “dead downtowns… office workers are still missing in action.”
They pointed out that office occupancy was down more than 40% from its 2019 levels in New York, Los Angeles and D.C. A December report from the San Francisco Standard also noted that San Francisco’s budget projections for the next six years included over $1 billion in lost commercial property tax revenue. “The losses have largely been blamed on private companies’ remote work policies.”
“But the pain doesn’t end there. As noted by city economist Ted Egan at the committee meeting, office space industries contribute about 72% of San Francisco’s GDP meaning ‘if anything happens to the office sector, it ripples throughout virtually every aspect of the city’s economy.'”
And the NBER’s paper extrapolates to the ultimate danger. Plugging the holes in the tax base requires either raising taxes or cutting public services — neither one of which is an attractive option. The report warns since it’s now much easier to work from home, it’s also much easier for people to move out of the cities if they’re dissatisfied with a city’s tax rate — or its crime rate. So for cities, being forced to raise one or the other “risks activating a fiscal doom loop.”
In fact, this week the New York Times pointed out that most of America’s major cities already “face a daunting future as middle-class taxpayers join an exodus to the suburbs, opting to work remotely as they exit downtowns marred by empty offices, vacant retail space and a deteriorating tax base.”
“Downtowns are at a crossroads,” the Washington Post’s editorial board warned recently.
Rocking the Suburbs
William Frey, a demographer and senior fellow at Brookings, told the New York Times that from 2015 to 2019 there was a constant level of migration to the suburbs — but then that migration spiked during the first year of the pandemic (largely due to people leaving cities). And those heading off to the suburbs tended to be the ones earning the most — from the tech, finance and real estate industries — taking their income and property taxes with them.
Stanford economist Nicholas Bloom tells the Times that every large city is seeing professionals and managers move to the suburbs. Once ensconced in their suburban homes, they can enjoy the extra space and comfort on their work-from-home days, while still being within commuting distance for their “hybrid” work schedules.
But Bloom actually believes “this is mostly good for cities — younger, hipper and lower-income folks, essential service workers, in-person retail workers are all more able to afford city-center accommodation.
“Bankers, techies and other graduates drift out to the suburbs. This is making cities younger, more diverse and less gentrified.”
It’s a trend you see reflected in multiple statistics. In a recent executive briefing, Bloom cited Zillow’s figures on a big spike in rents and home values in the suburbs, starting around early 2021 and not plateauing until the end of 2022. Public transit journeys still haven’t recovered from an 80% drop in 2020. Bloom cites figures from the National Transit Database showing they’re still down by about a third from their pre-pandemic levels. Cities are even losing out on the retail taxes from their purchases (which they’re now making in the suburbs). Bloom estimates that this revenue is moving from San Francisco into nearby counties
So where does it lead? Joel Kotkin, the executive director of Houston’s Urban Reform Institute, recently published an article warning America’s great cities “are on the path to decay.” In America’s largest cities, 17.4% of the population lives below the poverty line, according to data from the U.S. census bureau (cited in a recent article in Forbes. While cities were once “engines of upward mobility,” Kotkin writes that they’re struggling to distribute those gains, adding “perhaps it’s unsurprising that migrants and minorities are heading to America’s suburbs, sprawled sunbelt cities and smaller towns.”
Kotkin argues cities just aren’t able to compete with the suburbs, exurbs, and so-called “garden cities” that exist on the peripheries of urban cores. Besides offering shorter, energy-efficient commutes, they’re also “increasingly places with their own thriving town centers and cultural venue.” (Though towards the end of his piece Kotkin suggests that while cities lose their supremacy, they could still see “a resurgence shakily built on tourism,” noting that “both New York and Chicago plan to build large casinos — the kind of Hail Mary pass that has rarely delivered solid economic results.”)
“While urban areas may resurge, they will no longer be the unmatched centers of population, economic power and innovation. The game has changed and cities, to survive, must learn to adjust. For if they don’t, the fate of Ancient Rome awaits.”
Can Offices Become Apartments?
There may be a solution. While in January the Washington Post’s editorial board raised the prospect of “ghost downtowns that could lead to increased crime and homelessness,” they also noted “growing interest among developers and investors who want to be a part of the office-to-apartment revolution.” And two months later the newspaper’s board revisited the idea in another editorial. It notes that cities like Atlanta and Washington D.C. are already on board with the idea, even announcing specific goals for the number of new residents or offering tax incentives for office-to-apartment conversions.
New York City is already considering tax breaks for landlords who convert offices into residential spaces, according to the Economist, along with less restrictive zoning laws. And there’s now already a new $250 million redevelopment project in New York City to convert a 22-story office building into a 1,300-unit apartment building, reports the Commercial Observer — one of the largest deals of its kind anywhere in America.
In early March Axios reported that Washington D.C. also had 383 new apartment units already under construction, with another 2,105 more planned in upcoming projects, and “several more projects still under wraps.”
The city was promising tax breaks if 15% of the units were affordable housing…

In New Mexico in 2019, the city of Albuquerque transformed a lumberyard into the hip Sawmill Market food hall, a social hub with communal dining tables.
While the hope is there, cities are still confronted with a glut of unconverted office buildings. And beyond the rising rates for mortgages, the Post‘s editorial board notes that developers face an even bigger disincentive: “the easy-to-convert buildings — ones that are vacant and on lots with ample light and alleys — are largely scooped up already… What remains are difficult properties that need significant reworking or tearing down.”
In January the Economist spoke to Dylan Burzinski, an equity research analyst at the commercial real estate analytics firm Green Street, who calculated that out of 420 million in Manhattan’s office market, only 20 million square feet can be converted to residential space. (“Apartments without windows or apartments without kitchens? I don’t think that’s a good idea.”)
Although in lieu of windows, some developers might try offering access to a sunlit inner courtyard, according to Gary Cohen, head of the development firm Willco. In a recent interview with Axios, Cohen admitted it gets expensive to bring older buildings up to code.
But despite the need to upgrade plumbing, conversions are still cheaper than starting from scratch — and are still generally cheaper. The Post’s editorial board urges leadership and creativity, calling it “a once-in-a-generation opportunity to reshape downtowns for the future.”
Or, as they wrote in January, “America’s cities are ripe for new skylines and fresh streetscapes. The best leaders will get going soon…
“Seeing cranes and scaffolding go up soon is essential to success. City leaders have to start thinking that way.”