In March 2020, the pandemic forced a large share of the population to work from home for the first time. As offices emptied out, local businesses that served office workers found themselves without customers. Fast forward 18 months and despite a largely successful vaccination campaign, many people continue to work from home. This has left many wondering how persistent this shift will be, and what its impact will be on local areas.
We reflected on these questions during the fourth workshop in our economic recovery series. The session started with Paul Mizen, professor of economics at the University of Nottingham presenting his research on the impact of working from home on retail and hospitality spending. Henry Overman, Director of What Works Growth, then set out the choices policymakers face, recognising that the impacts will vary across different places. A lively discussion provided further reflections from workshop attendees, mainly policymakers from local authorities and local enterprise partnerships.
Will home working persist?
At the peak of the pandemic, up to 40 per cent of workers were working from home. With the health risks receding, workers and their employers must decide what balance to strike between working from home and the office. While it is unlikely that many jobs will go fully remote, Paul Mizen presented survey data showing that most workers would prefer a hybrid system, working 2 to 3 days a week at home. If this happens it would be equivalent to working from home increasing by 22 percentage points compared to 2019 levels. That’s a big if, because the same survey data suggests employers favour more days a week in the office. Policymakers will have to choose whether to support the transition to hybrid work or incentivize everyone to go back to the office.
How will home working affect the allocation of workers and offices within and between areas?
If people do end up working from home, either entirely or as part of a hybrid working pattern, they are likely to want more space and may accept longer commutes given that they no longer need to go to the office every day. Given the constraints in housing supply, this is likely to drive prices up in residential suburbs. Meanwhile, demand for offices may decrease, potentially driving down rents. Some local policymakers noted that they are seeing early examples of this shift, with office space that has become available remaining empty despite the economy re-opening. If this occurs, policymakers may need to allow conversion for other commercial or residential use.
How do changing patterns of work affect the retail and hospitality sectors?
During the pandemic, London’s business district experienced a fall in spending of between 30 per cent and 40 per cent. Post-pandemic, in the UK, the shock created by the shift towards working-from-home is estimated to reallocate up to £67 million spending per week, affecting up to 90,000 retail and hospitality workers. While there is a possibility that some of this spend and jobs will reallocate to residential areas where workers are now spending more of their time, it is unlikely that all of it will.
As many attendees pointed out, employees working from home may not consume as much outside the home as they would if they were working from the office. It will also be harder for businesses to supply the same service in less densely populated areas due to lower customer numbers and fewer economies of scale. Finally, the lower-paid workers needed for retail and hospitality may find it difficult to relocate or costly to commute to those residential areas, making it harder for businesses to find the labour that they need. Policymakers have an important role to play in facilitating the reallocation of businesses – by allowing change of use – and may need to help workers adjust- for example by providing training.
There is still a lot of uncertainty about the long-term impacts of the pandemic on how and where people work. Policymakers should closely monitor the current trends in mobility and local labour markets – see this report and workshop video for help on how to monitor the economic recovery. Using this data should provide answers to two questions: first, whether workers are headed back to the office and second, if they are not, how to support those in the retail and hospitality sector who will be hit hard by the fall in demand from office workers.
To find out more about this topic, you can watch the event video here.