The loss of office and shopping areas in the center of U.S. towns is a national trend that affects millions of people in a big way. Foot traffic has gone down because more people have stayed home because of the COVID-19 outbreak. A lot of well-known stores are closing, and even high-end properties are having trouble keeping renters.
A lot of people heard about the closing of a Whole Foods shop in downtown San Francisco in May 2023, after only one year. It was even more telling that Nordstrom, a high-end department store, closed its main store there in August after 35 years.
Since 2019, the number of empty offices in New York City has grown by more than 70%. A 26% vacancy rate was seen on Chicago’s Magnificent Mile in the spring of 2023. This is a stretch of high-end shops and restaurants.
A new study from the University of Toronto found that downtowns in North America are rebounding from the pandemic more slowly than other urban areas. The study also found that “older, denser downtowns reliant on professional or tech workers and located within large metros” are having the most difficult time.
I have studied urban politics for more than 50 years and have seen many booms and busts in U.S. cities. But now I see a more basic change happening. In the U.S. and other places, I think that classic downtowns are dead, dying, or on life support. Local governments and city dwellers need to think about what cities will look like after the pandemic right away.
Decades of Building Too Much
Downtown areas in the U.S. were already having trouble before COVID-19. The overhang of extra business space we see today has been building for years. The real estate markets in cities are based on speculation. When the economy is doing well, individual builders choose to build more, and the effect of all of these smart choices is too many buildings.
In the 1980s, when Reagan was president, he let business real estate lose value faster, which lowered tax rates for developers. As a result of financial globalization, a lot of foreign money came into the U.S. real estate market, mostly for very large building projects that could take in large amounts of cash looking for safe long-term investments.
For years, interest rates were low, which made it easy for companies to pay for their projects with cheap money. The governments of cities were eager to approve projects that would bring in tax money. Between 70% and 80% of all the land in many city areas is now used for offices.
What the Pandemic Push
This 40-year bubble was finally burst by COVID-19. A lot of people worked from home and got used to virtual meetings during pandemic lockdowns. As traditional travel went down, telecommuting went up. People who had the money and the freedom to move from cities to so-called “zoom towns” where living was cheaper and there were parks and other outdoor activities nearby.
Many bosses now want their workers to go back to work. However, workers are fighting back, especially against having to work five days a week. It’s easier to work from home now that there are more tools available, and workers have more power in negotiations because the job market is tight.
There are big effects that spread outward. Downtown office workers are important to many types of businesses, such as restaurants, shops, and services. Leisure and hospitality jobs make up at least 17% of all jobs in the 100 biggest places in the U.S. It used to cost an average office worker in San Francisco $168 a week to be close to their job.
Since almost 150,000 fewer office workers take the train downtown, 33,000 jobs in shops and service have been lost.
Changing the Use of Office Space
What should towns do with their extra office space? In some places, like Columbus, Ohio, investors are buying buildings at very low prices, tearing them down, and putting the land to better use by building homes or mixed-use buildings. There are also choices like turning commercial space into homes or more specialized uses like biotech labs.
This isn’t a cure-all, though. There are many rules and regulations that need to be followed, but places are changing their zoning laws to make the process easier. A lot of office buildings have big floor plans inside, which makes it pricey to split them up into separate apartments that all have access to natural light. And houses made of glass with windows that don’t open tend to get too hot.
Another idea is to make downtowns more appealing by doing things like letting food trucks and small businesses operate without fees, letting people park for free at night and on the weekends, and advertising events and restaurants. Food coupons for lunch are given out by the city of Columbus.