Remote Work Is Gutting Downtowns, Will Cost Cities $453 Billion

An anonymous reader quotes a report from Insider: Deserted downtowns have been haunting US cities since the beginning of the pandemic. Before the pandemic, 95% of offices were occupied. Today that number is closer to 47%. Employees' not returning to downtown offices has had a domino effect: Less foot traffic, less public-transit use, and more shuttered businesses have caused many downtowns to feel more like ghost towns. Even 2 1/2 years later, most city downtowns aren't back to where they were prepandemic. [...] The increased cancellations of office leases have cratered the office real-estate market. A study led by Arpit Gupta, a professor of finance at New York University's Stern School of Business, characterized the value wipeout as an "apocalypse." It estimated that $453 billion in real-estate value would be lost across US cities, with a 17-percentage-point decline in lease revenue from January 2020 to May 2022. The shock to real-estate valuations has been sharp: One building in San Francisco's Mission District that sold for $397 million in 2019 is on the market for about $155 million, a 60% decline. Other key indicators that economists use to measure the economic vitality of downtowns include office vacancy rates, public-transportation ridership, and local business spending. Across the country, public-transportation ridership remains stuck at about 70% of prepandemic levels. If only 56% of employees of financial firms in New York are in the office on a 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 playing out, but it isn't looking good. Declines in real-estate valuations lead to lower property taxes, which affects the revenue collected to foot the bill of city budgets. Declines in foot traffic have deteriorated business corridors; a recent survey by the National League of Cities suggested cities expect at least a 2.5% decline in sales-tax receipts and a 4% decline in revenue for fiscal 2022. "The solution to the office-housing conundrum seems obvious: Turn commercial spaces like offices into housing. Empty offices can become apartments to ease housing pressure while also bringing more people back to downtown areas," reports Insider. "But after two years, few buildings have been converted." According to the report, it's being hampered by hard-to-justify construction costs and local housing rules. "Overall, combating the death of downtowns requires a reworking of how we think about cities and the value they provide," the report says. "The 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 make it, and it is to them, not buildings, that we must fit our plans.'" "The economic health of cities is intrinsically linked to how space is used or unused, and right now downtowns are undergoing a massive shift. Despite the sluggish movement, it's in cities' best interest to figure out how to quickly convert office-centric downtowns into something more suitable for everyone."

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