I don't think we, as humans, will ever work fully remotely. I know companies like 37signals and others have been successful in this working model, but personally, I must have some human contact with the person I have been working with. I would imagine that the majority of humans would also have the same attitude.

Humans are social creatures and we have an emotional need to connect. I can clearly see this as I contrast this human need when I compare my wife's needs and my needs. I am borderline Asperger's and my need to connect is not as high as that of my wife. Although this observation is in a family environment, I don't think it is too dissimilar in an office environment.

So from the perspective of connection, physical location matters.

Also, random spontaneous interactions happen more when there are more 'particles' bouncing around. That's part of the point of this book:

http://davids-book-reviews.blogspot.it/2012/10/the-new-geogr...

That said, I did my time in the Bay Area, got out, and I'm happy to see people doing more in all kinds of places.