The Boston-Cambridge economy may never be the same after the COVID-19 pandemic, as the long-term acceptance of remote work and changes in commuting and travel habits reverberate throughout the region.
That’s the big takeaway from a new report released Tuesday that consultancy McKinsey & Co. did for the Baker administration, estimating how much pandemic-driven shifts in work behavior might remain long after the disease is subdued.
From its surveys of hundreds of businesses and residents in April, McKinsey found that more than one-third of local employers plan to pare back their real estate footprints over the next two years. As a result, demand for office space could drop by up to 20 percent, and commuter rail usage could fall between 15 and 50 percent from pre-pandemic levels, the report said.
Meanwhile, some retail activity would shift to the suburbs and online, as the daily trek downtown becomes less common. And up to 5 million fewer business travelers could visit Boston annually by 2030, a drop of nearly 30 percent, leading to an overall decline of 15 percent in total passengers at Logan Airport.
“You may see the center of gravity, for lack of a better word, move a bit, or maybe we’ll end up with a bunch of centers of gravity,” Governor Charlie Baker said in an interview. “People will have more options with respect to where they work and where they live than they’ve had before.”
One alarming prediction is how much dislocation these changes would cause in the job market. McKinsey estimated that as many as 300,000 to 400,000 jobs will be eliminated or phased out over the next 10 years, many in support positions such as office administration or the hospitality industry. That means as much as 10 percent of the labor force could have to find new lines of work over the next decade in a changing economy.
That and other findings dovetail with longtime priorities of the Baker administration, such as retraining significant portions of the workforce, spurring housing construction, and fostering growth in city and town centers. Baker will likely use these findings as he prods the Legislature to support his proposed allocations of the state’s share of federal stimulus funds, including $1 billion for housing causes, $240 million for job training, and $350 million to invigorate downtowns and neighborhood business districts. Baker has also begun efforts to pare back the amount of office space occupied by state workers, a move he says reflects private-sector trends.
But with many office employers waiting until September at the earliest to call back their troops, it’s still too early to draw sweeping conclusions.
Tamara Small, chief executive of real estate trade group NAIOP Massachusetts, said the more dire scenarios in the report don’t jell with what she’s seeing in the market. The outlook has changed significantly in the three months since McKinsey’s employer survey was taken, she said, thanks in part to the successful rollout of COVID-19 vaccines.
She pointed to recent decisions by tech giants Amazon and, more recently, Facebook to dramatically expand their local office footprints. Brokers are seeing a surge in requests to tour office spaces, she said, and people are starting to grumble about the awkwardness of hybrid work meetings, as some colleagues come back to the office while others continue to beam in from home.
“It’s very early right now to be talking about companies slashing their office space,” Small said.
How this dynamic plays out could be significant for public transit usage. Bus and subway ridership could drop 5 to 25 percent from pre-pandemic levels, the report said, with commuter rail volume falling far more steeply. Some former riders will likely spend more time in their cars. That trend, when factored alongside the near-ubiquity of Amazon delivery vans, means congestion levels on roads are likely to return even as more people work from home.
Baker said he expects the nature of the rush hour in Greater Boston will shift, with smaller crowds at peak times, and more commuters coming and going at traditionally off-peak times.
“You’re going to end up with more people doing more things from more locations, and using more virtual connectivity capacity than we saw before the pandemic,” Baker said.
Public transportation advocates hope the report isn’t used to justify spending cuts.
“If we don’t make it an attractive proposition, then people will be in their cars, and that will just exacerbate the situation,” said Josh Ostroff, interim director of the Transportation for Massachusetts advocacy group.
Greater Boston Chamber of Commerce chief Jim Rooney said issues of reliability and scheduling are also important factors in public transit. Cutting back on schedules because ridership is down would simply be “digging the hole deeper,” he said.
The McKinsey report could help state officials decide how to deploy federal stimulus dollars, Rooney said. But it’s hard to draw definitive conclusions, he said, given the caveats and disclaimers sprinkled throughout.
Among the important issues highlighted in the report: economic inequity. Officials in the Baker administration say they are acutely concerned that women and people of color will see their earnings potential fall further behind. With tens of thousands of people each year seeing their jobs disappear, the amount of retraining required could be unprecedented — perhaps double or triple what the state funds currently.
“We’ve never been able to train 30,000 to 40,000 people a year,” said Rosalin Acosta, Baker’s secretary of labor and workforce development. “That’s going to be a real challenge.”
The report’s priorities align with legislative goals the Black Economic Council of Massachusetts is pursuing on Beacon Hill. But BECMA policy adviser Courtney Brunson said she was disappointed there isn’t stronger language in the report addressing how the pandemic exacerbated inequities. “Every issue in this report is impossible to accomplish without focusing on the equity issues,” she said.
State officials are also worried about Massachusetts’ economic competitiveness compared to other states. With an increasingly mobile workforce, employers and employees alike could be more drawn to states with less expensive and more readily available housing. About one-third of Massachusetts workers can do their jobs remotely, McKinsey said, one of the highest such percentages in the country.
“Coming out of the pandemic, from a competitive standpoint, the high cost of housing is a major concern of ours,” said Mike Kennealy, Baker’s housing and economic development secretary. “We’ve had the benefit of being a world-leading innovation economy for a very long time, [but] the competitive dynamic has changed now.”
State Senator Eric Lesser, who cochairs a recently established future of work commission, said the McKinsey report underscores just how much is at stake for Massachusetts, and why policymakers need to be attentive to pressing issues such as improving access to child care and intercity rail service.
“Massachusetts has the potential to be a great beneficiary of this new future because of our historic leadership around technology and life sciences,” Lesser said. “We also have the potential to be on the losing end of many of these changes, because of the challenges around housing and competitiveness and transportation.”