Return-to-office mandates are mounting from companies located in financial hubs like New York and California, but that’s not where most people are working in the office.
While 15% of the U.S. worked from home last year, most were based in the Northeast, on the West Coast and in other large metro areas, per new Census figures released in September. And this year that trend has continued. It highlights how RTO mandates might actually be playing catch up to the rest of the country, rather than setting a standard.
For example, the Census data found that over 25% of the workforce in the Washington, D.C. metro area is remote, compared to just 5.5% in Mississippi. The Southeast generally is well below the national average of people working remotely. Ohio, Kentucky, Tennessee, Texas, and Indiana all have a lower share of people working from home compared to the U.S. average. Meanwhile, people in California, Oregon, Massachusetts, Vermont and New Hampshire are all above the U.S. share.
Bevi, a provider of smart water coolers for commercial spaces that tracks RTO data based on usage, found similar results when breaking it down by region. For example, people in the south seem to be in the office more, which is shown through an over 55% usage of Bevi machines with people in the office about four days a week. But in San Francisco, that number has been stuck at 39% for a long time. It only recently touched 50%. The company also sees higher workplace attendance in suburban areas than urban ones.
Massachusetts takes the top spot in the most flexible states rankings, with 86% of employers offering work location flexibility for their corporate employees, according to the most recent Flex Report by Scoop Technologies, which surveyed 6,500 companies. It too found that companies in the West and Northeast U.S. dominate the top 10 most flexible states, whereas those in the South and Midwest tend to be less flexible.
As RTO mandates become more strictly enforced, the data starts to paint a new picture – one that highlights that the success of mandates hinges on where people are located above anything else.
One might guess that people are returning to the office more in big metro areas where there are larger concentrations of office buildings and bustling downtown economics – like the Northeast and West Coast. However, it’s those same areas that have higher costs of living, painful commutes and longer Covid-19 lockdowns that formed WFH habits. Companies in these areas are pushing hard for people to return to the office, partly to justify high real estate costs, and partly because they think it will improve productivity. But it’s not a method that’s had great results.
So does that mean remote work might be a blue-state privilege? Potentially.
Different cultures between metropolitan and rural areas
Etienne White works in marketing and sustainability from her 34-acre sheep farm in southwest Wisconsin. Many of her friends are still working remotely too. But not all. One of her friends has a 1 hour and 20-minute commute. According to the census data, Wisconsin is below the average share of people working from home.
“For the coasts, with everyone up in arms about having to go back, I wonder if that’s privilege talking too,” said White. “They really liked that they didn’t have to go to the office, and maybe in the Midwest people don’t have that privilege of walking out because of that. It’s probably more like ‘I really enjoyed that I got to work from home, but now they’re saying we got to go back, so we should go back.’ It’s not Silicon Valley, jobs aren’t as plentiful and easy to get, and job swapping is not a thing. Maybe there’s a cultural difference in the Midwest.”
She questions if that is a part of the Midwest mindset. “We’re good farm workers, we have a good work ethic. If you tell us we need to go back to the office, that’s probably what we will do. I wonder if we are more conservative in that sense,” said White.
Jose Maria Barrero, an assistant professor of finance at Instituto Tecnológico Autónomo de México, where he studies labor economics, thinks that culture plays a part too – and politics.
“I think across parts of the United States, regions where lockdowns were harsh and extended, people learned to work from home a bit more, whereas parts of the country that opened up very quickly and went back to offices, these habits related to working from home are not as entrenched,” said Maria Barrero, who conducted research that came to the same conclusion that WFH is more common in major cities than in smaller cities and towns.
During the pandemic, rural areas across the country made headlines for either not shutting down at all or reopening earlier than metropolitan areas. If these areas never adjusted to having to work remotely, they never had to really tackle the “return to office” challenge that those on the East and West Coasts are facing today.
“The areas that tend to have the most flexibility or least RTO are the areas that had the longest lockdowns,” said Rob Sadow, CEO and co-founder at hybrid work app Scoop Technologies. “It’s a part of habit formation when people get used to doing the same thing. The longer people worked from home, the more comfortable and adjusted they got, and now it’s harder to bring people into the office full time.”
Besides this, though, Sadow says that it’s important to consider the industry mix based on location. In the West and Northeast, there is a higher concentration of tech, insurance and financial service companies – all sectors that have been more flexible when it comes to working from home, in part because it’s possible to do from anywhere. In the South or middle of the country, there are high numbers of manufacturing or blue-collar jobs, which of course require workers to be physically present.
Alyssa Daugherty, head of the southeast recruitment at Phaidon International, agrees. “Many industries have hubs in certain cities,” said Daugherty. “For instance, the San Francisco Bay Area is known for their tech market and Boston for their biosciences market, and the decision to return fully to office can come down to the needs of the industry and their roles. Certain roles in bioscience may require talent to be fully present in a lab, but for industries like technology, which is highly digitized, there may be less of need to be in person.”
Cost of living crisis, commute times
RTO mandates in cities like New York and San Francisco dictate that people return to offices at a time when living costs are higher. California, Oregon, Massachusetts, and New York are all in the top five states with the highest costs of living. During the pandemic, when people were told they could work from home, they moved further outside of the central part of the city. It allowed these workers to have cheaper housing accommodations and spend less time and money on commuting.
“I think that how painful your commute might be matters a lot,” said Maria Barrero. “If you live in Brooklyn, but you have to commute into Manhattan and it takes 40 minutes, and you can do your job from home, that’s going to push someone to work from home more often, versus someone who lives in a smaller city and has a 20 minute commute with very little traffic.”
That’s the reality for people who live in more rural areas. Even if they have a long commute, it probably won’t be a painful one that involves the subway, a bus or biking. It’s a little easier to get to the office there.
Bevi sees higher workplace attendance in suburban offices than urban ones,” according to its CEO Sean Grundy. “If we look at the New York area, we see hire-machine usage in Westchester, New Jersey and Southern Connecticut. Same for Boston and San Francisco. If public transportation is a hassle, people are less likely to come in. It could also be a trend around people who live in the suburbs going to satellite offices instead of the headquarters.”
Sadow’s data backs this up too. The Flex Report found that the metros that have worse traffic tend to have higher WFH rates. It’s also a reason why a hybrid schedule has gained traction.
“When professionals got a taste for work from home, many realized that there was a lot of peace that came from having a hybrid or remote working model,” said Daugherty. “They could still enjoy the fast-paced nature of the city, with the gift of choice.”
Aside from commuting, the actual cost of living is quite different in the middle of the country. It’s one of the reasons why companies are paying remote workers different salaries based on where they live. People can no longer get away with having a NYC salary while living in Kansas, for example. It’s true that workers across the country are dealing with rising costs and inflation, but while that happens, workers in metro hubs don’t want to add additional costs to their monthly budgets if they don’t have to. An apartment closer to the office and additional costs for commuting isn’t on their wishlists.
According to Revelio Labs, the areas that underwent the most decentralization between 2019 and 2022 include the Bay Area and Seattle, which are the headquarters of Apple and Microsoft, respectively. Washington, D.C. and Boston also had significant shifts. Going back to the office means having to move back to these high rent locations, and lose a significant portion of income. Companies might try to help out with a relocation bonus, but usually it’s not enough.
“If you’re having to return to a really high rent area, that’s just not going to cover it,” said Hakki Ozdenoren, economist at Revelio Labs. “A $1,000 relocation bonus isn’t going to cover your rent going from $1,000 or $2,000, to $4,000 or $5,000. Rent is one part of it, but the schools are more expensive, groceries are more expensive. It’s basically a cut in your salary.”
Real estate trends paint the same picture
“It’s clear that return to office in the sunbelt market was much greater and much faster than in our downtown markets, especially on the West Coast or Northeast,” said Julie Whelan, global head of occupier research at commercial real estate firm CBRE. “The markets in the sunbelt area were much more resilient from an office market standpoint.”
Pre-pandemic, the suburbs always had higher vacancy rates than downtown. Today, it’s the reverse. Whelan says that’s not because suburban areas have a higher share of transactions, but rather have been stickier with existing tenants.
But today, companies have drawn a line in the sand around RTO. In the last nine months, the markets in the sunbelt region have plateaued, stressed Whelan, while downtown markets have begun to gain traction.
“People feel better about building different routines and organizations are much more clear about expectations,” said Whelan.
And while workers struggle with paying rent on time, employers are OK with dishing out a lot of money for the perfect type of office. “When employers know where they want to be and the type of building, they will pay for it,” said Whelan. And while there are fewer transactions occurring in Manhattan, those that do close are among the most expensive rents ever, according to CBRE data.
Despite the fact that some workers have decentralized, employers are trying to combat that. Whelan says that employers have shown preference for having a central city location that many people can get to, rather than setting up suburban satellite posts. That approach also helps cities that have long relied on workers to boost the economy. When they’re not there, that means no one is spending money at local restaurants, cafes, bars and so on.
One solution for these cities is more likely to come from ambitious redevelopment projects, like converting office towers into residential buildings. Whelan says that conversion activity is real. There are 100 conversion projects planned before the end of 2023 – that’s more than double the number historically. Of those, half are office-to-apartment conversions.
“It won’t be a silver bullet, but it’s a move in the right direction,” said Whelan.