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Retailers need to adjust to the lasting changes in where people live and work

The trend: The office occupancy rate in major US cities hit 50.4% in the last week of January, per Kastle Systems. That was the first time the office occupancy rate topped 50% since the pandemic began in 2020.

  • However, a closer look shows that the figure has largely plateaued since September, which suggests that a broad-based return to the office is unlikely to happen anytime soon.
  • That’s making life tough for retailers and restaurants that cater to downtown office workers. For example, fast-casual salad chain Sweetgreen noted in its November earnings call that hybrid work schedules in which few people venture to offices on Mondays and Fridays have hurt its sales.

Lasting changes: Where people live and work has undergone a dramatic transformation over the past three years.

  • The number of people who primarily work from home more than tripled between 2019 and 2021, per the US Census Bureau.
  • Commercial real estate companies such as RXR have resigned themselves to the reality that workers are unlikely to return en masse to many downtown office buildings, per The Financial Times.
  • Given their growing flexibility, many high-income residents have moved from downtown areas to suburbs or smaller, less expensive cities such as those in the Sun Belt.
  • That has shifted demand to smaller cities and suburbs. As a result, those growing areas have seen retail establishments open, while larger cities have seen closures, per a JPMorgan Chase Institute report. For example, San Francisco had 6.5% fewer retail establishments at the end of Q4 2021 than it had in Q4 2019, while Phoenix had 4.1% more establishments. Within metropolitan areas, close-rung suburbs have seen growth while downtown areas have seen declines.

Meeting demand: As retailers' leases come up, they may need to reassess their store mixes.

  • The 10 fastest-growing areas for dining in the US are smaller cities or suburbs such as New Haven, Connecticut, and Ontario, California, per restaurant reservation company OpenTable, which compared 2023 data this year with pre-pandemic, 2019 figures.
  • That’s why a growing number of destination restaurants are opening locations in the suburbs. For example, Chicago-based restaurant group DineAmic Hospitality restaurant group opened its first two suburban restaurants this year, per The Wall Street Journal.
  • It is also why luxury brand Prada recently opened a store in Austin, Texas.

The big takeaway: It’s becoming increasingly clear that a return to the pre-pandemic office-centric downtown is not going to happen anytime soon (or maybe ever).

  • Retailers and restaurants need to adapt to serve consumers closer to their homes, which may mean more restaurants like Sweetgreen popping up in close-rung suburban locations.

This article originally appeared in Insider Intelligence's Retail & Ecommerce Briefing—a daily recap of top stories reshaping the retail industry. Subscribe to have more hard-hitting takeaways delivered to your inbox daily.