Home office and consumption: How the “donut effect” threatens inner cities

The corona pandemic has given online trade a huge boost and plunged many stationary shops into existential difficulties. Now rising prices are also spoiling the shopping mood, and in many places it is feared that the city centers will die. In addition to the online boom, a study by the Munich ifo Institute emphasizes a second effect that is usually somewhat underexposed in the debate: consumption is not only shifting from shops to the Internet, but also from the city center to the suburbs.

The economists can show this using anonymized credit card data provided to them by Mastercard. Local card payments in Berlin, Hamburg, Munich, Stuttgart and Dresden were examined. The result: While sales in the city centers were still around 10 percent below the pre-corona level at the end of May 2022, they have risen by up to 20 percent in classic residential areas. So there’s a gap in the middle, around it it looks quite good in some cases – the phenomenon is therefore also called the “donut effect”.

Working from home is changing cities

According to the study, the reason for this shift is the significant expansion of the home office. Because even after almost all corona restrictions have been lifted, many more employees are working from home than before. And if you don’t drive to the centrally located office, you won’t go to lunch in the city or run a few errands there. Survey data from the ifo researchers suggest that consumer spending has increased above all in those parts of the city where the number of home office workers has also increased.

It is fitting that the trend only applies to the days of the week. On the weekends, on the other hand, people still go downtown to shop, the researchers write. According to the analysis, the donut effect can be seen in various industries. Thus, both the sales of the food trade and gastronomy in the periphery have developed better than in the centres. And clothing is also more often purchased in decentralized areas than it used to be.

The economists assume that high home office rates are a permanent phenomenon. They therefore expect for the future “that consumer spending will also shift to the Internet and to residential and suburban areas in the long term”. Retail and gastronomy in central locations and in the vicinity of large office complexes are most affected. The city of the future must be organized in a much more decentralized manner than in the past. “The new world of work thus has the potential to fundamentally change the appearance of cities.”

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