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Trend 14 October Oct 2020 0704 14 October 2020

The effects of smart working on city centre economies

Estimates by ISMEA (Italy’s service institute for the agricultural and food market) state that by the end of the year the country’s hospitality industry could lose up to 40% of its turnover. This is a very real downturn in the market that is likely to have a serious impact on the future of many city centres.

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Working in our slippers, on the balcony or in the living room. The coronavirus pandemic has swept away certainties and changed what seemed to be rock-hard habits in the way we worked, turning the exception of working remotely into the rule for many of us, perhaps for all of us. Proof of point are the words of Milan’s mayor, Giuseppe Sala, who has said: “When I see office blocks that can accommodate up to 3,000 workers being closed, as a mayor I am worried. Consumption has fallen and it will be like this for quite some time. Milan is likely to lose out.”

This is not the only alarm bell ringing. The mayor of London is equally concerned. Sadiq Khan has said that the future is “worrying if people continue to work from home. Many small businesses rely on workers going to work, the café bars, the dry cleaners, the shoe repair shops and others.”

The same is true in the US where the loss for the ‘office economy’ is estimated to be billions of dollars. Large chains and small shops have been forced to face a necessary but painful drop in their expectations: almost 100 million remote workers have halted an economy where they previously shopped before and after work. The prospects are equally grim for the travel industry, where companies spent significant sums in the past, and also for the office space rental business which will see falling revenues as city centres become emptier.

This overturns the estimate made by Enrico Moretti of the University of Berkeley in his 2012 book ‘The New Geography of Jobs’ when he forecast that each skilled job creates five new unskilled jobs. Today bartenders, waiters and cleaners all risk losing their jobs because engineers and programmers are working from home instead of going to the office.

Enrico Moretti’s ‘geography of work’ has been turned on its head: bartenders, waiters and cleaners all risk losing their jobs because engineers and programmers are not working from the office

In Italy, the situation is similar to the rest of Europe. Many companies have already announced that flexible working is here to stay. The announcement by the CEO of Eni, Claudio Granata, is a case at hand: “Even when a vaccine against Covid-19 does become available, 35% of employees will work from home on a permanent basis.”

Following in the footsteps of the energy multinational, other giants like Leonardo, Fujitsu and Unicredit have announced that they will continue with remote working. According to Cesare Avenia, president of Confindustria Digitale (the digital department of the association representing manufacturing and service companies in Italy,) “when fully in force, 60% of jobs will be carried out remotely to the benefit of productivity and the wellbeing of workers.”

The benefits to businesses are clear – consider real estate for instance. Many companies do not own the offices they occupy and when their leases expire, they will in all likelihood decide to move to smaller premises. During lockdown, others realised that their workforces were too large and that they could achieve the same level of efficiency with fewer employees. The result according to Barclays is that if remote working is extended, even alternating it with office work, this could lead to a 30% decrease in the demand for office space.

This could completely change the appearance of Italian city centres and impact the future careers of many workers in the ‘office economy’. According to a survey carried out last July by AGI and Censis, 2.8 million remote workers could mean financial disaster for many companies in the retail and wholesale sectors in Italy. This would be particularly damaging to small and medium sized companies which represent 96.2% of the total and employ 3.4 million people. The impact on the food and catering industry will be huge and could push 179,000 service businesses like bars, restaurants and accommodation and 88,000 retail businesses to the brink of collapse.

Estimates by ISMEA (Italy’s service institute for the agricultural and food market) state that by the end of the year the country’s hospitality industry could lose up to 40% of its turnover. This is a very real downturn in the market that is likely to have a serious impact on the future of many city centres.

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