Actually, a lot of the book Peopleware was devoted to showing that even in dense urban areas it is still cost-effective to provide private office space for knowledge workers. What you spend on extra real-estate is easily more than made up for with increased productivity, less sick time, fewer superficial conversations, etc., even over times spans as short as 1 year.

I think even in large cities, open-plan madness is still cargo cult and more about fashion and subtle ageism than it is about the economic costs of real estate. There's also some weird patriarchal aspects of it too, especially in financial companies where the offices and workflow are almost engineered to be like a Panopticon. I always enjoyed reading Joel Spolsky on his choice to commit to having private offices even in Manhattan, both for Fog Creek and later for Stack Exchange.

I'm sure there are cases where a company is strapped for cash, or where they need to be located in an extremely expensive part of SF/Manhattan/London/etc. If someone really used hard numbers to justify it, I'd have no problem with it. But the problem is nobody's using numbers. It's about fashion, signalling, and control.

I worked for an established education technology company that had offices all over. They bought a fancy new loft space in the Boston area and decked it out just like a SV stereotype: glass whiteboards everywhere, bean bag chairs, video games, gourmet coffee. The open seating was awful -- you had about 4 lateral feet of personal space, and your computer monitor practically bumped into the monitor of your neighbor on either side. There was effectively zero privacy. It was even hard just put a notepad of paper on my desk-slice and try to draw some ideas or take notes.

The company actually spent money, like > $10MM, to renovate their Columbus, OH, office to look the same. They didn't even have an engineering presence in Columbus. The people there were all veteran employees mostly within the HR, business, and regional sales departments. They all had private offices for years and were extremely productive with them, and also felt they had earned the right to work in offices given that many of them had long tenures with the company.

And the company paid money to remodel the whole office. They actively destroyed privacy features that directly created productive and happy workers, and spent money to do so.

When I did my exit interview at the company, I spoke with one of those HR reps in Columbus and talked a lot about my frustration with the Boston office's open layout. She shared my sentiment and lamented how, at her age and her rank in the firm, it was extremely frustrating to be placed back into a fully open-plan office and have no privacy to conduct calls or spread out her work materials and get things done.

I asked her why the company chose to do it, and all she could say was that they had recently hired a new CTO for a major sub-division in the firm, and that CTO brought in sweeping changes that were meant to "modernize" the company, and specifically he decreed that all of the offices needed to be remodeled to have open-plan layouts because "that's what engineers want."

And this was in a huge company, where presumably these kind of remodeling choices would have to be debated by committees, face political opposition from other parts of the company, etc. It was just insane.