Cities in a Postpandemic World: The Five Biggest Issues Cities Are Facing Now

When the COVID-19 pandemic shut down offices and much of the daily face-to-face interactions, researchers were predicting an exodus by residents from urban areas. Density was viewed as risky, despite the many benefits that come from being in city centers. While it is true that some of the largest metro areas in the United States have lost a significant number of residents to the suburbs and “exurbs” or other metropolitan areas, we are still too close to the depth of the pandemic to truly understand what the new residential and workplace equilibrium will look like. But there are five important issues that will impact cities and metro areas in the coming years:

• Workers returning to the office Based on recent evidence, it appears that employers and workers are finding a new equilibrium in which staff return to offices at lower frequencies than before the pandemic. It also seems that, at least during the current tight labor market, the ability to work remotely has become a hiring and retention tool.
• Attractiveness of cities for current and new residents We expect cities to retain their attractiveness, but rising rates of violent crime, high taxes, and poor housing affordability are significant concerns for many urban residents. As a result, there likely will be more competition among cities, resulting in greater population growth in smaller, less expensive urban centers.
• Cities providing a deep pool of talent Concentration of workers and businesses in urban centers allows for better matching of workers to open positions, and combined with the close proximity to many academic institutions, we expect that cities will continue to be the critical providers of workers for many industries.
• Urban infrastructure utilized differently The COVID-19 pandemic has created a greater demand for automobile trips, lowered the demand for public transportation, and made some business travel unnecessary. Many operators of infrastructure will need to manage their roads and rails differently and identify alternative revenue streams to finance operations. 
• Municipal budgets under pressure any cities and states have benefitted from generous financial support from the federal government during the pandemic. Local governments will have to deal with fiscal cliffs, i.e., financial budget shortfalls when COVID-19 support from the federal government runs out.

Insights for What’s Ahead

• Over the next few months and years, we will experience where the new equilibrium for office workers and their preference for office versus home-based work will fall. Businesses need to be aware that especially in tight labor markets, a more flexible employment policy can increase engagement and reduce costly turnover. Productivity will be enhanced by more consistent schedules; certainty on schools staying open and daycare facilities operating normally will also provide workers, especially women affected disproportionally during the pandemic, with opportunities to return to more stability.
• Cities will still provide diversified labor markets, but the ability for remote and hybrid work will diminish some of the location advantages. In fact, the availability of jobs will not be the only determinant of the desirability of urban centers. Rather, the importance of cities’ quality of life, safety, cost of living, urban design features, and recreational opportunities will have greater weight as office workers experiment with hybrid work models. In essence, the demand for large urban centers has become more elastic. In real estate, private owners of commercial properties will have to assess the financial sustainability of their buildings in a time of likely permanent underutilization of some properties. Conversions from commercial to residential uses might be a necessary strategy should current market conditions prevail.
• Public and private stakeholders will have to review their operational and financing needs when it comes to the way that infrastructure assets are utilized and operated. Many cities may experience permanently lower demand for transit and commuter rail service while demand for road transportation is increasing. Road congestion will need to be managed differently if extensions of rail lines, tunnels, or other capacity enhancements are no longer needed in a newly calibrated world. The same might apply to aviation assets and the number of hospitality properties in cities. Business travel might be permanently affected by new company travel patterns and fewer in-person meetings.
• Overall, we expect that cities will continue to be in demand by businesses and residents but that migration between urban areas will increase because of the attractiveness of lower-cost areas. With changing workplace expectations and a tight labor market, smaller, lower cost cities will likely increase their appeal and benefit from relatively lower cost of living, lower tax burdens, and improved personal safety.