The share of US workers working from home (WFH) at least part of the week has stabilised at around 25%, below its peak of 50% at the height of the pandemic but well above the pre-pandemic average of 2.5%. This has significant implications for office demand, consumer spending, and productivity. While the data below is sourced from the US (Goldman Sachs), many of the same effects will be evident in Australia.
The persistence of WFH reflects both structural and cyclical factors. Structurally, the pandemic-related lockdowns spurred technological innovations that make teleworking easier, and surveys show that workers now place more value on being able to work from home. Cyclically, tight labour markets over the last two years have made employers more willing to allow employees to work remotely.
WFH has reduced office utilisation rates but has not yet led to substantial declines in office occupancy rates because most firms are locked in long-duration leases. Looking forward, 17% of all US office leases are scheduled to expire by the end of 2024, 47% between 2024-2029, and the rest after 2030. Remote work will exert upward pressure on office vacancy rates, varying by location, though this is likely to be partially offset by a decline in new construction as well as conversion from office to residential.
Source: Goldman Sachs
The shift to remote work has also changed the geographic distribution of retail spending and employment. While spending on services that require face-to-face contact has now fully recovered, the recovery has been skewed towards suburban areas and away from city centres where traditional office-related activities take place.
Economic studies at this early stage disagree on the productivity effects of WFH, with estimates ranging from -20% to +10%, and would be affected by the precise nature of the work, the firm’s culture, and remuneration structures amongst other variables. The lack of consensus across these studies is likely driven by differences in how they measure productivity and the types of tasks and industries they study. More recent studies that measure productivity through complex performance metrics in industries involving high-cognitive tasks reveal more negative effects.
That said, most businesses in Australia are keen to revert to pre-pandemic practices amidst a general view that WFH, although now a more permanent part of the labour landscape, has been net detrimental to productivity.
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