CINCINNATI — Kristen Wesley remembers what life was like in an empty office building.
“It was eerie,” said Wesley, senior property manager for Lincoln Property Company in Blue Ash. “The phones aren’t ringing, no one’s popping in the office. You went from having 500 to 700 people in the building to having maybe 30.”
But Wesley is seeing signs of an office recovery in Blue Ash, where the vacancy rate peaked at 26% in June before falling to 23.9% by December, according to the commercial real estate firm, CBRE.
“I think the companies want people back in the office buildings and I see leasing slowly increasing,” Wesley said. “So, I think with each year getting away from 2020, it’s just getting back to normal.”
That’s welcome news for the city of Blue Ash, which paid $2 million in tax refunds last year, up 34% from pre-pandemic levels. Those refunds amounted to 5% of the $40.3 million in earnings tax collected by the city, enough of a haircut for Blue Ash City Councilman Jeff Capell to call for change.
“Our economic development plan cannot just be as simple as saying, ‘Let’s load up on a bunch of high-paying office jobs,’” Capell said. “It’s more complex than that now and you have to look at the mix of businesses you’re attracting.”
Measuring the impact
Blue Ash isn’t the only place adapting to seismic changes in where America goes to work.
The WCPO 9 I-Team has been exploring the impact of remote working arrangements on local cities with high concentrations of white-collar workers. Across the region, our analysis shows those workers spent about $570 million less in 2022 - compared to what they spent in 2019 - on “meals, entertainment and shopping near work,” based on survey data compiled by WFH Research.
Nearly 20% of that impact was focused on the region’s three biggest office clusters: Downtown, Blue Ash and the Uptown neighborhoods surrounding the University of Cincinnati.
Those numbers ring true to Michelle Klingenberg, senior vice president and office broker for the commercial real estate firm, JLL.
“We’re seeing daily, retailers, especially downtown, closing because there’s not enough volume to keep them open,” Klingenberg said. “We’re in the Scripps building downtown and we just got an email that our coffee shop in our lobby is closing. All of our tenants are back in the office but they’re hybrid. So, a couple days a week at home makes such a huge difference.”
Cities all over the country are seeing a similar impact, said Kate Lister, president of Global Workplace Analytics, a California-based consulting firm that helps employers develop hybrid workplace strategies.
Lister said employees can save up to $4,000 per year by working remotely, spending less on transportation, dry cleaning, restaurants and daycare. While the shift is causing turmoil in local economies, she expects cities will eventually benefit from increased worker productivity and environmental improvements caused by reduced traffic and the closure of older office buildings.
“We’ve got another three to five years for the rest of the shoes to drop,” said Lister. “In the long run it’ll all work out but in the short run it’s going to be painful.”
Those pain points are emerging in surprising ways in Greater Cincinnati, including the unprecedented loss of more than 7 million square feet of available office space, a 34% increase in municipal tax refunds and systemic changes in the local hotel market.
Office conversions
During most of his 24-year career as an economic development professional, Andy Kuchta chased high-paying office jobs as the loftiest prize attainable. That is no longer the case.
“Given the new normal, a highly skilled resident that is working from home permanently would be my first choice,” said Kuchta, who became Springdale’s economic development director a few months before the start of the pandemic.
Kuchta estimates the city lost 2,000 “daytime residents” when companies relocated employees who once worked in some of Springdale’s oldest office buildings. The biggest example was Humana Pharmacy, which allowed about 700 employees to work from home in 2020 and vacated its Merchant Street building late last year.
That’s why Springdale embraced the conversion of two office buildings into apartments across from the Humana property. The $40 million Trinity Square project is nearing completion. It aims to attract new Springdale residents to fill 131 apartments and 97 townhomes, replacing a vacant office complex built in 1981.
“If they’re living here and working from home at least a few days a week, we’ll start recapturing some of that lost earnings tax,” Kuchta said. “And we’ll have the extra benefit of replacing some of those lost daytime employees that were coming into those office buildings and going to our restaurants.”
Such conversions have fueled an historic downsizing of the region’s office supply since the pandemic.
Total available office space declined from 38.8 million square feet in 2019 to 31 million at the end of last year, according to the commercial real estate firm, CBRE. More than 15% of that shrinkage came from office conversions, including Carew Tower and the former Macy’s headquarters building downtown.
“All of that old product coming off-line is pushing people into this newer development, higher asking rent,” said Klingenberg, a JLL broker who is showing more “Class A” properties to tenants. “While it does seem like there’s a lot of companies in our market downsizing, they are still moving to a more expensive and higher-quality building.”
Refunds rising
Eleven cities responded to the I-Team’s request for earnings tax data. They paid a combined $32.4 million in refunds last year, up 34% from 2019. The refunds amounted to 4.8% of the $669.2 million collected by those cities in 2022.
But how many of those refunds went to remote workers? About 31%, said Fairfield Finance Director Chris Hacker. That’s $431,200 out of the $1.4 million in 2022 refunds paid by the city.
“There was an option for taxpayers to indicate” on their refund requests whether they were working remotely, Hacker said. “We also marked refunds as being due to work from home if the place of employment address and the refund check mail-to address matched.”
The city of Cincinnati estimates 38% of its 2022 refunds were paid to people working from home, based on analysis by its income tax division. That’s $8.6 million out of last year’s $22.8 million total.
Mason paid $1.8 million in refunds last year but isn’t sure how much went to people working from home.
“I know that in 2022, 40% of the refund amount was paid to those who do not live in Mason,” said Finance Director Joe Reigelsperger. “In 2019, about 31% of the refund amount was paid to those not living in the city.”
All of that suggests about a third of last year’s refunds, roughly $11 million, went to people working from home.
But here’s a surprising twist: Nine of the 11 cities posted overall increases in income tax due that offset their rising refunds, thanks to new jobs, rising wages and increases in corporate profits. Norwood, for example, saw an 83 increase in refunds to $407,851. But it collected nearly $600,000 more from its 2% income tax in 2022, compared to 2019.
“Our tax base is diversified,” said Norwood Treasurer James Bonsall. “We still have teachers in our schools, retail workers in our stores at Rookwood and beyond, and medical professionals at their offices.”
Hotel stress
In a quiet corner of Blue Ash, Kat Whittington witnessed one surprising impact of the remote-working office trend: Low-rent hotels.
“When we first got here it was pretty rough,” said Whittington, who moved to the Suburban Extended Stay hotel on Cornell Road in 2021. “There was a lot of prostitutes living here, or bringing people in … you could see a lot of drug activity.”
The hotel at 4650 Cornell Road had 244 police runs last year, up 249% from 2019. Blue Ash police records show 29 runs for domestic trouble, 37 for unknown trouble and 24 for emergency services. Hamilton County health inspectors documented 40 violations last year, including roaches and mold in multiple rooms.
The hotel’s management declined to comment. Whittington said the property has improved since November, when the owner changed the hotel’s name to Birch Hill Suites and brought in a new manager.
“If you have issues she takes care of it right away,” she said.
What does this have to do with remote working?
“Blue Ash has a lot of hotels and they’ve always been reliant on business travel,” said Capell, a former Labor Department economist who joined Blue Ash City Council in 2017. “Once the pandemic started and business travel cratered, hotels were then left with a ton of empty rooms that they needed people to fill. So, what they did is they lowered the price. And then when that happens, you draw in a different type of clientele.”
Blue Ash hotels had a 54.2% occupancy rate in 2022, down 7.5% from 2019 and roughly 5% below the region’s average hotel occupancy, according to data provided by STR, a hospitality research firm. Blue Ash also trailed the region in revenue per available room, at $52.48. That’s 35% below the regional average and 8% less than its 2019 numbers.
Hotels in other parts of the country have reinvented themselves as co-working spaces or remodeled conference rooms to host team meetings virtually, said Lister, with Global Workplace Analytics. But it’s a tough sell when companies are already battling inflation and figuring out what to do with under-used office space.
“We’ve sort of gotten used to Zoom,” Lister said. “With a recession on our minds also, we’re thinking about, ‘Do we really need to travel to Cincinnati to have that meeting? Maybe we could just do it over video.’”
What’s next?
Capell said the city is monitoring hotels in Blue Ash but has taken no policy action to encourage or discourage any changes in business practices. In the meantime, he’d like the city to revise its approach to business attraction.
“You definitely want to look at the types of businesses that do require people to come into the office,” he said. “One type of industry that you could look at is light manufacturing … more of a high-tech, high-skill, high-paying industry.”
But he doesn’t want Blue Ash to abandon office jobs altogether.
“What’s made Blue Ash especially successful is we’ve always had a good chunk of residential, plus a good chunk of business, plus a good chunk of recreation,” Capell said. “We like to have a lot of those three and that makes a mix for a very successful community. I’d hate to see us go away from that.”
The commercial real estate team at JLL said employers can help by requiring more time in the office while office-building owners can help by making hybrid-work space more attractive.
“Companies are more interested in transforming their spaces to make it more conducive to the new work environment, more collaborative spaces,” said Klingenberg, a 10-year industry veteran. “It seems like people are still doing their heads-down work at home but then coming into the office to have that interaction with people.”
Back at Lincoln Property Company’s Lake Forest Place complex, the senior property manager predicts everything will be fine in time.
Blue Ash “is still going to be a strong market,” Wesley said. “We just need a little bit more time to get everyone back to a pre-pandemic mindset.”
