For years, the future of cities has been at the forefront of discussion in urban planning, real estate development, and workplace design. How will we adapt to new live/work/play models as interest in wellness and sustainability drive new design? How will we repurpose parking lots and gas stations in an autonomous driving world? How will we rethink mass transit in favor of more walkable/bikeable streets? These are the long-term questions on which futurists have spent the last 10 years innovating new solutions. Until 2020.
So what happens if all of a sudden, no one wants to go downtown to central business districts and high rise buildings … anymore … at all? What would happen if all of a sudden, these buildings and streets became empty? By mid-March’20, this became a harsh reality.
And so the shift away from urbanism has begun. People are questioning why they suffered through long commutes on crowded trains or in bumper to bumper traffic for multiple hours of their days that could be spent with family or on personal well being. Many that lived within big cities have moved. According to the USPS, temporary and long term moves out of the largest urban areas have been abundant in 2020 with New York City seeing a 487% increase in moves outward from February — June of this year compared to last.
When we dig deeper into industries, we see the pain that hotel, retail, and office properties are facing this year, especially in central business districts (CBD’s). CBD’s are typically defined as financial centers of cities; the largest of which, in the US, are called Metropolitan Statistical Areas (MSAs) which have greater than 50K people. Globally, the use of terms “city proper” and “urban agglomeration” are typically used to identify the largest cities.
Retail and hotel uses were hit the hardest by far, as their customers chose or were mandated to stay home. Retail has struggled for years due to an over-abundance of square footage of formats that are uninteresting and uninspiring. The rise of ecommerce models forced existing retailers to invest in expensive logistics and technology system conversions to compete with new online based brands. Hotels additionally had to focus on being digital-first to accommodate customer expectations. And now entering over eight months of low occupancy for both sectors, it’s no wonder that we are seeing closures everywhere, especially in what used to be the highest revenue generating units in large cities.
Office uses are likely to see continued declines as occupiers of this type of space rationalize such low utilization. Those using their offices have been on average keeping their spaces 10–20% occupied. Organizations with large or small office portfolios have just gone through a global test of remote work, and have realized that it can actually maintain or increase employee productivity. So, in addition to realizing that they don’t need this much office space, organizations are realizing that they will need to invest in the design of these spaces to ensure they remain relevant to new uses going forward, which will not be all open plan environments where each employee has their own desk.
Offices are traditionally leased long term, for 5 to 15 years, so as companies look to rationalize their real estate portfolios we will likely see that they will be in positions to shed space over the near term. The real estate lifecycle is a long one — it typically takes an organization a minimum of 6–9 months and in many cases years to find a location, negotiate the terms of a lease, design and build out a space, furnish it, and open for business, so finding replacement uses will take time.
So what will happen to all of this extra space? As it sits empty and income stops coming in, it can become a security issue. But building owners or investors will likely not be interested in investing in space that is no longer bringing in revenue. And as a lack of jobs and increase in mental health problems drive increased homelessness, these vacant spaces are likely to draw problems.
But it’s not all doom and gloom. While many are moving out, there will be many moving in. And vacancies will drive new uses and attract capital for experience driven designs and new urban ecosystems. The shift toward providing flexible work environments for employees that include their homes, company headquarters offices and satellite offices, and third party serviced office or coworking spaces will reduce commutes, increase personal time, improve productivity and carbon footprint, and drive an overall improvement in the health of our societies. According to the Washington Post, cities like New York and San Francisco while being hit the hardest, are very likely to ultimately attract many in a more affordable way. While this is likely to take many years as well as redevelopment to further attract the middle classes, the outcome could be the balancing our society needs.
Industrial and infrastructure spaces are among the few uses that are actually seeing improvement and investment. Although these uses are typically not seen in central business districts, the increased demand could lead to innovative new solutions as logistics companies push to solve for that last mile.
While change is almost always painful, it can lead to something beautiful. More than ever, we need those futurists to keep their focus on making our cities true ecosystems that support our whole selves. It will take investment to redevelop, but environments that bring people together to enjoy culture, promote productivity, support diversity, and increase our health and well-being will entice us to enjoy the experience that they can offer.
Interested in helping make sense of these challenges? Come join the Grey Swan Guild (www.greyswanguild.org) where we are doing just that — managing the unmanageable and the unimaginable.
Author profile: Emily Watkins is a commercial and retail real estate and development leader with 23 years of experience with global and national organizations. Her experience spans senior real estate and cross-disciplinary innovation leadership roles in B2B and B2C environments. She is passionate about the built environment and driving transformational change.