Working from Home, Shopping Close to Home

This trend has already altered real estate prices in downtown areas, reduced the number of commuters and shifted consumption patterns towards more online spending and more close-to-home offline spending, depressing volume sales in downtown brick-and-mortar shops.

However, the existing literature lacks evidence on the causal link between the altered geography of work and the spatial distribution of consumer spending; and importantly, whether these changes will persist.

CESifo’s 10,000-milestone paper, written by Oliver Falck and his colleagues Jean-Victor Alipour, Simon Krause, Carla Krolage and Sebastian Wichert, aims to correct that.

Their study leverages postcode-level data on anonymized credit-card transactions supplied by Mastercard, together with data on the prevalence of working from home (WFH) for the metropolitan areas of five major German cities between January 2019 and May 2022. This way, they were able to quantify regional shifts in offline retail spending throughout the pandemic and after covid-related restrictions were lifted, and link these changes to the prevalence of WFH.

Before covid hit, consumption-intensive areas were typically located close to city centers, which had higher population and business density, and more expensive housing. After the outbreak of the pandemic in March 2020, offline transaction volumes in these previously high consumption-intensity areas declined by 6-10 percent, increasing to 14 percent in subsequent months; sales volumes had not yet recovered by May 2022.

The pattern is similar across different spending categories, including eating places, grocery and food stores, and apparel stores, indicating a general regional shift in retail sales. A closer look at the data shows that the effects are partly driven by an absolute spending increase in lower-consumption-intensity areas, precisely the areas that showed much stronger WFH growth during the pandemic, while consumption-intensive areas lose revenue throughout the post-outbreak period. Was WFH the determining factor?

To pin down the answer, the authors defined something they call “untapped WFH potential” as the local share of employees with a teleworkable job who did not work from home before the pandemic. They[FO1]  found that high pre-pandemic untapped potential, meaning high actual WFH growth since the pandemic, led to more consumption close to home. To put it into more technical language, transaction volume close to home is on average 2–3 percent higher for every standard deviation increase in the untapped WFH potential detected before the pandemic.

Tellingly, the effect is driven by spending during weekdays, rather than on Saturdays, and is only significant outside of lockdowns and once covid restrictions were permanently lifted—since during lockdowns shops were closed anyway and offline spending could not emigrate to the suburbs.

The next question is, is this a permanent shift? The authors are categorical: WFH will persist. Their survey data they gathered for the five metro areas in question suggest that 30 percent of employees wish to work at least one day per week from home, up from 14 percent pre-covid. Given that employer plans diverge from their employee desires, our researchers averaged employee desires and employer plans to find an expected post-pandemic WFH rate of a quite respectable 24 percent.

Thus, the altered micro-geography of work and consumption is here to stay, giving city centers reason for concern, such as emptying offices and less frequented retail stores. Whether local businesses survive, how much traffic there is, and how buildings are being used—all of that depends on how many people come to the city regularly.

Urban planners might consider creating more mixed-use areas in the future to better connect residential, office, and shopping areas.

And the shops could stock more slippers and better cat food.