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When it comes to urban centers, the pandemic hasn’t been very friendly. Downtown restaurants and retail centers have encountered what many call ghost towns today. With so many people working from home and buying online, office and retail spaces are empty. In fact, recent reports suggest that as few as 14 percent have returned to New York City office space. Combined with the fact that many businesses appreciate the cost savings, no one’s clear about the future of urban centers. Despite health advances, vaccinations and declining COVID cases, some wonder if these changes might be permanent anyway.

Without a doubt, many employees have enjoyed working from home despite its initial inconveniences. In fact, four out of 5 believe it has been a successful transition. But at the same time, nearly 90 percent believe offices are important for some business activities. Team meetings, creative collaborations, and relationship building are among those things. So, does this mean the future of urban centers will once again look favorable? That’s a question that tends to generate different answers depending on who you ask.

“The vast majority of employees say a hybrid system of two-to-three days working from home and two-to-three days working in the office is their preferred approach.” – Deniz Caglar, Leading Practitioner in Strategic Cost Transformation, PwC

A Transformative View of Office and Retail Spaces

Most everyone agrees the future of urban centers won’t look exactly the same even after the pandemic. The impact of new technologies and new ways of living will certainly dictate change. Because of this, some see office and retail spaces evolving into a different model. Office cubicles will no longer be needed because such work can be easily accomplished at home. Instead, open conference areas where creative collaboration can take place is more likely. In addition, outdoor areas and green spaces may also be the norm. These features along with better décor could help encourage workers back into the city.

While these changes may help, they’re not going to be enough to necessarily make a long commute worthwhile. For this reason, office and retail spaces may need to embrace other models as well. As previously discussed on Bold Business, shared space concepts could help revive city spaces and improve the outlook for the future of urban centers. Like coworking spaces, commercial areas could be shared at different time by different businesses. Also, spaces could also become more multipurpose in nature. Childcare, fitness classes, laundry services, and hair salons could provide one-stop shopping for workers. This would certainly make the trip into the office more productive.

“I believe the cities that generate this type of “cognitive capitalism,” such as San Francisco, New York and San Jose, will bounce back. Those that have more routine industries that can be done anywhere, like Detroit, Baltimore and Buffalo, may not.” – John Rennie Short, Professor of Geography and Public Policy, School of Public Policy, University of Maryland

Virtual Platforms Are Great, But…

Over the last year, tremendous advances have been made in both science and technology. Virtual platforms have expanded with new virtual tools emerging, making work-life better. But these advances do not mean the future of urban centers are doomed. In fact, the demise of city office and retail spaces were predicted after the invention of the telephone. It was also expected after the emergence of the personal computer. But these technological disruptors had little effect long-term as we now know. Thus, some anticipate the same thing will take place with virtual systems as well.

Some people working in an office with masks on
Office and retail spaces are being reshaped thanks to COVID and subsequent lockdowns.

Though office and retail spaces cannot appreciate it now, urban environments offer some unique benefits. For one, they provide a concentration of individuals who posses a variety of skills and knowledge. The proximity of such talent in city settings facilitates contact between people. Frequent and regular contact then builds trust and strengthens business relationships. And in time, this leads to greater exchange of information and ideas. Of course, this could occur virtually, but it’s much easier in person. Because of this, the future of urban centers may be brighter than currently suspected.

“The risks and costs of contagion will fade. And then workers and companies will be unable to resist the benefits of sharing, matching and learning that arise in densely populated areas.” – Michael Orlando, Lecturer of Global Energy Management, University of Colorado, Denver Business School

The Concept of Agglomeration Economics

The term agglomeration economics refers to the concentration advantages that urban environments offer. In essence, these benefits provide three different economies of scale that will always make city centers attractive. These include the economy of sharing, the economy of matching, and the economy of learning. Of course, during a pandemic, places where there’s a high concentration of people isn’t desirable. But as the pandemic fades, these advantages will be more apparent. This would be welcomed news for office and retail spaces today.

To appreciate why the future of urban centers looks promising, it’s important to understand the three economies of agglomeration economics. Economies of sharing is beneficial to businesses that have specialized and rarely used services. A greater density of people sharing such services increases the diversification of offerings. Economies of matching describes the increased opportunities for those in need of a service finding what they need. City centers provide better matching because of their density. Finally, economies of learning describe the greater number of chance encounters in populated areas. These chance encounters provide additional opportunities to learn that otherwise wouldn’t be possible. As population densities become more acceptable, these economies are expected to drive greater demand for office and retail spaces.

The Bust Before the Boom

While the future of urban centers may look rather bright down the road, that’s currently not the case. Even after the pandemic is better controlled, there will likely be hesitation among many to return. That means office and retail spaces may see things worsen before they get better. Adopting new models and experimenting with different strategies will be requires in order to survive. But rest assured, eventually urban centers will again be lively sources of business.

 

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