When I think of my home town of London, we have recently been blessed with the Elizabeth Line, which is without a doubt the best tube line of them all and so enjoyable to use. The new line connects the city with Canary Wharf and the East End, and continues west all the way to the Thames Valley as far as Reading. This major infrastructure project has significantly increased housing prices, and some businesses hoped it would be a boon for them as well.
Map of the Elizabeth Line
Source: Transport for London
For example, M&G developed an office building at 2 Forbury Place and then sold it to Citigroup. The hope was that these offices could be rented to companies hoping to move their employees out of the city and save on rent. Today, 2 Forbury Place is 60% empty, according to a report in Bloomberg. M&G itself, which still owns neighboring Forbury Place, is struggling to sell that property. The initial asking price was £86 million, but some people expect it to sell for less than £30 million.
Amazon, meanwhile, has moved its staff from Slough (next to Reading and also on the Elizabeth Line, if you’re not familiar with Greater London) to its offices on Liverpool Street in the heart of the city.
These are obviously anecdotes, not data, so let’s look at one analysis by Gregory Verdugo and Malak Kandoussi, which looked at the movements of workers from the center of Paris to the suburbs and vice versa.
First, they found that the average commute time of workers moving to the suburbs increases by 19%. Naturally, employees who live in the suburb where the office space is being moved will see their travel time significantly reduced. But most employees live in the city or in the suburbs around Paris, and for them the move means that they now have to take public transport to the center, transfer to a train or bus and then drive back to another suburb. Public transport is simply not designed for travel from suburb to suburb. It is designed to connect the city center with the suburbs.
Naturally, employees who are faced with longer travel times are more likely to quit their jobs. Although the study shows that this risk increases only moderately, companies are so concerned that they will increase wages for skilled, but not unskilled, workers who are moved to the suburbs. For every hour of additional travel time, companies increase the hourly wages of these employees by 10% to 20%.
If you think about the average worker in France who works 35 hours a week or seven hours a day (I know, I know,…), this means that for every additional hour of work, these workers’ wages increase by about 70% to 140% of the worker’s hourly wage. In other words, the employees are paid by the company for their extra commute.
The reverse obviously does not apply when offices are moved from the suburbs to the city center. In this case, employees still receive the same salary, but benefit from a shorter travel distance.
Put all these findings together and you see that moving office space to the suburbs only makes sense for a company if it employs primarily low- and medium-skilled workers there (because they are easier to replace and have less bargaining power to bargain for higher wages) and if rents in the suburbs are sufficiently low that the company still offers savings when higher wages are taken into account. Essentially, the only white-collar jobs a company can move from the city center to the suburbs are support and administrative jobs. And that’s exactly what we see in real life. Go to any office park in the suburbs and look at the companies you find there and the types of employees who work there.
#pay #people #work #suburbs