The one-year anniversary of the pandemic lockdowns has come
and gone, and with it comes the recognition that certain aspects of quarantine
are, to greater and lesser degrees, here to stay. Companies that once housed
thousands of workers in our central business districts are grappling with
employee pressures to continue remote work policies and how that will affect real
estate needs. Nowhere are the challenges these long-term changes more evident
than in America’s “superstar” cities.

Many have been forecasting doom for the mega-cities — New York City, Chicago, San Francisco, Washington DC, Seattle, and their peers. The concern is that COVID-19, and the resulting remote work boom, has resulted in a large scale exodus of people out of expensive metropolitan areas with negative downstream impacts on the delicate and intricately woven smaller-business economies that serve workers and residents. Will these cities, which depend on millions of daily commuters to fill office towers, pay public transit fares, and feed the tax base, falter in the post-COVID-19 world? There’s some evidence the concerns are well-founded.

San Francisco has documented population losses and hits to mass transit and the local tax base. Manhattan has experienced a sharp drop in demand for commercial real estate reflected in a $6.5 billion drop in market values for several of the nation’s largest real estate management firms — SL Green Realty, Vornado Realty Trust, and Empire State Realty Trust. Additionally, Spotify, MediaMath, and Salesforce (among other large employers) are all planning to shrink their in-person offices in downtown Manhattan and other locations — losses that will not be entirely offset by other large firms, like Facebook and Apple, who have announced office expansions.

While mass corporate and residential exits seem dire, the reports of the death of the American city have frequently been exaggerated. In fact, there’s some evidence that the flight of big companies to more distant and cheaper locales, along with a more distributed workforce, is also creating some opportunities. The withdrawal of businesses is pushing down rents and opening doors to smaller businesses, the entrepreneurial class, and working-class professionals that have historically been priced out of the big cities. The pandemic has, in a number of important ways, flipped life upside down in major metro areas, but it has also created an economic vacuum and some very attractive physical assets that can be repurposed by strivers looking for entry into the big city markets. Dr. Schumpeter would have understood this perfectly.

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