Remote work empties city centers and will cost cities $453 billion

An anonymous reader quotes an Insider report: Deserted downtowns have haunted American cities since the start of the pandemic. Before the pandemic, 95% of offices were occupied. Today, that number is closer to 47%. The fact that employees are not returning to downtown offices has had a domino effect: less foot traffic, less use of public transport and more businesses closed have caused many downtowns more like ghost towns. Even 2.5 years later, most downtowns are not back to where they were before the pandemic. […] The increase in office lease cancellations has cratered the office real estate market. A study by Arpit Gupta, professor of finance at New York University’s Stern School of Business, called the erasure of value an “apocalypse.” It estimated that $453 billion in property value would be lost in US cities, with rental income falling 17 percentage points from January 2020 to May 2022. The shock to property valuations was brutal: a building in San Le Francisco’s Mission District, which sold for $397 million in 2019, is on the market for about $155 million, down 60%.

Other key indicators economists use to gauge the economic vitality of downtowns include office vacancy rates, transit ridership and spending by local businesses. Across the country, public transit ridership remains stuck at around 70% of pre-pandemic levels. If only 56% of New York City financial firm employees are in the office on any given day, the health of a city’s urban core is negatively affected. The second-order effects of remote work and a real estate apocalypse are still happening, but it doesn’t look good. Falling real estate valuations lead to lower property taxes, which affect the revenue collected to foot the bill for municipal budgets. Declining foot traffic has deteriorated commercial corridors; a recent National League of Cities survey suggested that cities expect at least a 2.5% drop in sales tax revenue and a 4% drop in revenue for fiscal year 2022. “The solution to the office conundrum seems obvious: turn commercial spaces like offices into housing. Empty offices can become apartments to ease housing pressure while bringing more people back to city centers,” Insider reports. “But after two years, few buildings have been converted.” According to the report, it is hampered by hard-to-justify construction costs and local housing regulations.

“Overall, tackling the death of inner cities requires rethinking how we think about cities and the value they provide,” the report says. “Urban author Jane Jacobs proclaimed in her famous 1958 article for Fortune magazine, ‘Downtown Is for People,’ that “there is no logic that can be superimposed on the city; people do it, and it is to them, not to buildings, that we must adapt our plans.

“The economic health of cities is intrinsically tied to how space is used or unused, and right now downtowns are undergoing massive change. Despite the slow movement, it’s in cities’ interest to understand how to quickly convert office-centric city centers into something more suitable for everyone.”

Leave a Reply