Covid hit New York and San Francisco but wealthy cities will bounce back

Each period branded the city with deep economic pain, triggering massive job losses and the evisceration of small businesses. He remembers headlines blaring, “New York is over,” but that “every single time, we bounce back,” he said.

Now 49 and the chief operating officer of a health and fitness app, Noom, Fawer is trying to steer his company through the shocks of the coronavirus and ensuing recession. Operations shifted online and staff went remote in March. Business fell about 10 percent initially, he said, but swiftly picked up. He’s now adding staff, and expects the corporate head count will soon be double what it was in January.

While it showed the company could function, even thrive, without a physical office, Fawer said, “we’ve also learned we don’t enjoy it that much. It’s the difference of being at a party, and being on FaceTime and people are passing you around.”

For many Americans, the disorienting rush of the coronavirus pandemic prompted a revaluation of major life choices — such as where to live — and broader questions on whether the pandemic will diminish the dynamism and allure of New York and other “superstar cities” like it.

This elite class of American city, including San Francisco, Los Angeles and the District, comprise densely populated economic powerhouses with deep reserves of talent and wealth. But without an office to report to, their ultraexpensive real estate become harder to justify, especially as technology and necessity have opened pathways to work pretty much anywhere.

The intense clustering of professionals in industries such as aerospace and software development underscores the self-reinforcing ecosystems of world-class research universities such as those found in Boston, and sprawling corporate hubs in Seattle. Of the 250,000 technology jobs created from 2005 to 2017, roughly 90 percent flowed to just five cities.

Alongside the rising pay for a subset of skilled worker also came a scarcity of housing, bruising commutes and widening inequality. Rents in San Francisco, in the heart of Silicon Valley, are roughly twice the national average, Commerce Department data shows. And nearly 1 in 10 American workers have commutes of an hour or more each way, a reflection of the distance people in many metropolitan areas must travel to find affordable housing. The need to socially distance and to dedicate a part of the home to office work — a couch, a counter or an entire room — has also compelled people with the means to consider more spacious homes in more affordable places.

The initial outbreak of the novel coronavirus in the United States triggered a significant impromptu domestic migration. It also highlighted the inequality of having the option to leave big cities at all.

In New York, for instance, more than 400,000 of the city’s wealthiest residents fled in the spring, leaving neighborhood home vacancies as high as 40 percent. Vacation-home sales in resort towns, which already have higher rates of remote workers than the rest of the country, have skyrocketed. In Park City, Utah, the number of homes under contract jumped 70 percent this summer compared with the same period last year, according to Reach Advisors, a market research and analytics firm that focuses on real estate and economic development.

After a decade of rising rents, rent prices are actually falling in the biggest, most research- and technology-intensive cities. Two of the most expensive metro areas, San Francisco and New York, have seen sharper drops, as the “high-income, high-rise lifestyle,” has lost some of its appeal, said James Chung, president of Reach Advisors. But home sales overall, after plummeting during the early months of the pandemic, have surged this summer, showing equal strength in the suburbs of most cities and in the denser urban core.

“We are not seeing a massive rush to the suburbs from central corridors,” Chung said. “It’s not that people have stopped buying in cities and going to the suburbs. They are going up in both markets,” he added, pointing to historically low interest rates, and a mismatch of supply and demand, where fewer people put their homes on the market during a season when many more people bought. “We’ll not see cities die; we’ll see cities evolve,” he said.

In D.C. and its suburbs, the pandemic has fueled a real estate boom as families yearn for more space and younger professionals look to upgrade. Though the rate of millennial workers moving to the metro area was slowing even before the outbreak, its entertainment venues, cultural activities, restaurants, outdoor spaces and public transit tend to attract a highly educated and skilled workforce, despite the high cost of living, said Derek Hyra, a professor at American University and the head of the school’s Metropolitan Policy Center.

But he said the nation’s capital, even when the United States climbs out of a recession, won’t offer the same recovery for all of its residents. Home to one of the nation’s highest displacement rates for low-income residents, the city has seen the forces of gentrification push out less affluent Black people.

“When we come out of this recession, I do feel like cities as a whole will do well, but I don’t know if people of color in cities will do well,” Hyra said.

The pandemic has accelerated economic changes for a significant portion of the population. It has sped up and compressed trends within months, from the abrupt upsurge of online shopping to remote work. “We just sort of jumped 10 years into the future,” said Fawer, the Noom executive.

For the countless companies that have been operating without a central office for months, the change has functioned as a forced experiment in virtual work. The results thus far suggest businesses might add flexibility to work arrangements in the future, assuming that a coronavirus vaccine and other developments allow most office workers to return safely.

While face-to-face interactions have disappeared for many white-collar workers, along with the spur-of-the-moment conversations and collaborations that offices inspire, workers have found benefits too. The absence of a commute, and the ability for some employees to be just as productive at home, will lead some companies to adopt a shorter in-office workweek, or a hybrid model in which employees rotate between working from home and coming into the office, business leaders say.

“The idea of having a huge physical footprint in New York, with people at their own dedicated desks, we’re reconsidering that,” said Mike Rudoy, co-founder and chief executive of Jetty, a financial services company that aims to make renting more affordable. Rudoy envisions a new type of office space for his company, probably as a place for people to congregate for meetings and group work, and to come in a few days a week. “The feedback I’ve received from my team is that there are elements of working from home that allow them to focus and that office work might not allow.”

The pandemic has also broadened views on recruitment. Early-stage start-ups and smaller companies have had to compete with the extraordinary salaries offered by tech giants such as Facebook, Google and Amazon, drawing from the same talent base of in-demand workers, such as engineers. Rudoy said that hiring first-rate employees without requiring them to be physically present in superstar cities can expand the pool of talent.

(Amazon chief executive Jeff Bezos owns The Washington Post.)

But changes in hiring and office dynamics might continue to deflate the commercial real estate market, which the pandemic has battered. Nearly 70 percent of chief executives expect to scale back their office space, according to a recent survey by the financial services firm KPMG. And more than two-thirds of office workers say they would prefer to work away from the office at least two days per week, once the coronavirus crisis ends, the global consultancy PwC found.

Cheaper and more abundant office space, however, might not be a bad thing, said Nicholas Bloom, an economics professor at Stanford University. Before the pandemic struck, the trade-offs of living in superstar cities included high cost, pollution and lack of space. But the shift to remote work might reverse some urban trends, leaving city centers less dense and cheaper to live and work in. In his research over the summer on the economics of remote work, Bloom found that 42 percent of American workers were doing their jobs from home full time. He expects the growth of city centers to stall, as remote work cements itself as a long-term fixture, reversing some of the gains and extreme costs of living that superstar cities have generated over the past several decades.

Bloom even speculates that a more diffuse job market might reduce the political polarization between urban and suburban populations and more rural communities.

Facebook is among the major tech companies with a significant presence in metro hubs that is planning for a vast shift to remote work. In May, chief executive Mark Zuckerberg told employees that he expects half of the company to work remotely within 10 years. Facebook will begin hiring experienced engineers as remote workers, only requiring that they live within four hours of an engineering office, he said. The company will also establish new hubs in Atlanta, Dallas and Denver. Most current employees have been working from home since March. Eventually, he said, “we want to enable many existing employees to become long-term remote workers if they want.”

Twitter will let employees work from home permanently. And other industry leaders, including Google and Apple, have suggested they will institute some form of long-term flexible work plan.

Some businesses in distress are reconsidering their office spaces. Several newspapers have left their newsrooms behind, including five outlets owned by Tribune Publishing, the parent company of the Chicago Tribune and the Baltimore Sun. And Advance Publications, the holding company of Condé Nast, which publishes the New Yorker, Vanity Fair and Vogue, is said to be considering leaving its headquarters at One World Trade Center.

But even as once-bustling business districts have devolved into abandoned office plots, the vigor of office culture and the pull of job opportunities and better pay probably will keep high-caliber workers and companies coming to superstar cities once the pandemic subsides. Economists and business leaders believe these cities will hold on to their elevated status even after the initial upheaval of the coronavirus.

“The same economic forces at play in February that made them so economically successful will be in play when the pandemic is over,” said Enrico Moretti, a professor at the University of California at Berkeley who researches labor and urban economics. “My impression is that these claims that superstar cities are dead are a little premature.”

In August, Facebook agreed to lease the historic James A. Farley Building in Manhattan, which used to serve as the main post office facility in the city center. The social media company is also buying what was planned to be REI’s elaborately designed 400,000-square-foot campus in Bellevue, Wash., after the sporting goods and outdoor equipment company decided to abandon it.

Rather than view the doubling down on office space as contradictory to a new era of remote work, Facebook describes the developments as complementary — embracing the flexibility that some workers desire, and investing in company culture and more face-to-face interactions. “The pandemic has encouraged us to take a step back and look at how we can do things differently to meet our needs and stay a step ahead of how our workforce is changing,” said Jamila Reeves, a corporate communications manager for Facebook’s East Coast and Midwest offices.

The draw of city life and of the buzz and relationships of the office are already weighing on some people. “Week one looked okay. Now we are in month seven. What does year one look like? Or year two, three, or six?” asked Anthony Casalena, founder and chief executive of website building platform Squarespace, nodding to the uncertainty of turning a temporary situation into a protracted period of working from home.

Casalena said the company has had the luxury of transitioning seamlessly to remote work, with a return date at the start of next year. But he is continually evaluating what the next timeline will look like, even as a new kind of work fatigue creeps in and the sparks of social connection feel left out.

“I can’t believe how exhausted I feel after the eighth or ninth Google Hangout,” he said. “There is something to in-person relationships, and there is something missing when we are all hanging out on a Zoom call.”

Fawer, the Noom executive, tries to put the pandemic in context: The other dark periods in his city’s history also prove its resilience, and he’s moving forward accordingly. His company expects to double its HQ staff next year, too.

“New York City will be back, and that’s why we are definitely betting on it in the future,” he said.

Graphics by Andrew Van Dam.

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