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Remote Work Is Gutting Downtowns, Will Cost Cities $453 Billion (businessinsider.com) 273

Posted by BeauHD from the office-apocalypse dept.
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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Remote Work Is Gutting Downtowns, Will Cost Cities $453 Billion More

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

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  • Objection (Score:5, Informative)

    by fibonacci8 ( 260615 ) on Tuesday December 06, 2022 @07:08PM (#63109056)
    Speculation

  • Oh no! Poor landlords! (Score:5, Insightful)

    by devslash0 ( 4203435 ) on Tuesday December 06, 2022 @07:09PM (#63109062)

    I'm "sorry" that your bulletproof investment didn't work out. Me and the rest of the society will surely be thinking about you when you start getting close to the breadline by earning millions instead of billions.

  • Its a buying opportunity. (Score:3)

    by 140Mandak262Jamuna ( 970587 ) on Tuesday December 06, 2022 @07:11PM (#63109064) Journal
    Downtowns have fantastic rail/road connections, dense enough to support some form of public transport and are uber/ola friendly.

    After Brown vs Board of Education decision there was a white flight to suburbs. Local real estate developers, gas companies and auto dealers worked together to sell an American Dream of single family homes its own lot and weekend spent mowing lawns.

    That generation is nearing their end of lifespans. The new generation is more welcoming of diversity. Already we see gentrification of many neighborhoods, Offices becoming apartment complexes, downtown school districts reviving etc will happen. So the situation is not going to be dire for downtown real estate. In the long run.

    The single family homes, chores of lawn mowing, drive way snow clearing, leaf raking etc are not really very attractive to people. So the real danger, in the long run, is for those two acre wooded lots housing 4 bedroom colonials. They might not keep up with inflation. They will be even more car dependent.

    • Re:Its a buying opportunity. (Score:5, Insightful)

      by devslash0 ( 4203435 ) on Tuesday December 06, 2022 @07:18PM (#63109080)

      You know what is great about single family homes? Independence. You don't have neighbours playing music, banging doorframes, having loud conversations or being otherwise disturbing your own life at any and every time of the day. Peace and quiet.

      • Re:Its a buying opportunity. (Score:4, Insightful)

        by stabiesoft ( 733417 ) on Tuesday December 06, 2022 @07:34PM (#63109118) Homepage
        Completely this. I have been very blessed in my life to only have to live in apt for 2 years. Those two years were the pits. Neighbors arguing at 2 in the morning because the baby would not stop crying. Single family homes are a sanctuary.

        • I've been living in a hell of a place for 3 years now. I'm looking to buy a detached house right now, make it my last rental. Having neighbours is hell on Earth. Only yesterday I had a couple shagging since 10:30pm til 3am roughly every 15 minutes, and she's a loud model. Remarkable stamina, but my sleep deprivation and ears can't stand it no more.

        • Re: (Score:3, Informative)

          by Dutch Gun ( 899105 )

          Absolutely. My home in the suburb is fantastic. It's a generally quiet neighborhood of white collar and working class folks, and nice friendly neighbors. I can fix up my home however I like.

          It's a great long-term investment as well. My home has quadrupled in value over the last twenty years. I can sell it and move somewhere cheaper when I want to retire if I want. And the monthly mortgage payment is now a lot lower than renting, since it stays pretty constant.

          No way you'd drag me back into an apartmen

      • This. After 20 years living in a major city I am done. I want that single family home where my neighbors are appropriately far enough away from me.

      • You know what is great about single family homes? Independence. You don't have neighbours playing music, banging doorframes, having loud conversations or being otherwise disturbing your own life at any and every time of the day. Peace and quiet.

        I feel like this view depends a lot on what you mean by 'apartment living'.

        In many places I've come across that use the north american city model (car based transport), apartments are just clusters of homes stacked on top of each other within suburbia. If you want to get anywhere, you still have to get in your car. Sometimes there might be a strip mall within walking distance, but it will be next to a big road so you won't want to 'hang out there'. You have to drive to get to a nice park and the green space

      • You know what is great about single family homes? Independence. You don't have neighbours playing music, banging doorframes, having loud conversations or being otherwise disturbing your own life at any and every time of the day. Peace and quiet.

        You know what's bad about them? All the things the OP mentioned. It comes as a shock to many Slashdotters that not everyone thinks exactly the same way as they do.

        We own a single family independent home, and yet we choose to live in an apartment. And yes we do get the occasional noise (and make some of our own). But our pros/cons list is weighted differently than yours.

    • I pay someone to clear the driveway and mow the lawn. Local landscaping company with very reasonable rates.
    • Just like all the great "buying opportunities" in Detroit for the last, oh, 40 or 50 years? The white flight narrative isn't exactly wrong, but there was a strong economic motivation for it: the industries in the rust belt died, and didn't come back, and all the construction there was unsuitable for the industries that came next. Buffalo, Cleveland, Detroit, and Pittsburgh have each lost more than 40 percent of their populations over the last four decades. It's not a given that places will adapt and boun
    • There are people who love living in big cities, just not as many of them as you think. The pandemic freed a bunch of jobs to be done remotely, no longer forcing those who want to do that job to live work in congested office areas. Those who want to be in city are back, those who don't are not, hence downtown occupancies are not back to the pre-pandemic levels. This has nothing to do with being welcoming to diversity, rather it has to do with freedom to live where you prefer. To some people it's large cities

  • We fix overcrowding (Score:3, Funny)

    by Tablizer ( 95088 ) on Tuesday December 06, 2022 @07:11PM (#63109066) Journal

    and they bitch about it. MakeUpYourMind!

  • ... and the rent crisis is solved not just for city landlords but for city renters. Rental pricing has increased far above the rate of inflation. Increasing the supply can correct this. Besides, the mentioned $453bn will mostly be redistributed to the city sprawl and even rural areas. So no biggie.

    • That's a pretty decent idea.

      • It sucks. As others have also pointed out, you're ignoring the costs of conversion, which are more expensive than just bulldozing it at starting from scratch. And become even more reasonable as the building continues to lose value. If a building was worth $10 million 40 years ago, reached a peak because of inflation of $250 million, and drops back down to $10 million, just knock it down. Get over the "sunk costs" fallacy.

        The UK has tried this, and the result is hugely substandard housing slums.

    • Re:turn empty offices into public housing (Score:4, Informative)

      by Areyoukiddingme ( 1289470 ) on Tuesday December 06, 2022 @07:45PM (#63109132)

      Rental pricing has increased far above the rate of inflation.

      Rental pricing for housing has skyrocketed because the giant real estate conglomerates own both the residential and the office buildings in cities and they're desperately trying to stem the bleeding in their cash-flow. They're not about to make residential rates cheaper now. They can't.

      • Wish I had mod points. This is a big part of the equation, even if it is an over-simplification.

    • Re: (Score:2)

      by lsllll ( 830002 )
      What makes you think more people want to move to cities? If COVID taught anybody anything, it was that cities suck, both in terms of a contagious agent and feeling cramped in a tiny apartment.

  • Most commercial buildings would make bad houses (Score:5, Informative)

    by devslash0 ( 4203435 ) on Tuesday December 06, 2022 @07:15PM (#63109072)

    Commercial buildings like offices will never make great homes. Despite conversions, they are left with large windows, high-ceilings and poor insulation which makes them ridiculously expensive to run. They also suffer from noise issues between flats because partition walls are usually really thin, in contrast to load-bearing walls inside purpose-built flats which usually separate separate flats. It's also very difficult to make such conversions meet safety standards since most housing regulations (where I live) state that all flats should be self-contained from the fire safety point of view, so that a fire in one flat doesn't lead to the entire building burning down.

    • High ceilings? No problem. [wikipedia.org]

    • When you convert you don't build partition walls. They are as sound-attenuated l as the builder wants them to be and fire rated. The windows can be dealt with gracefully, although they won't be operable without a lot of work.

    • Offices are awful places really. Noisy, cheap, poorly insulated with either no windows or whole walls of inefficient windows, often with terrible ventilation... They're designed under the assumption that the heating and cooling bill to be a tax writeoff. Good luck converting something like that to residential.

      • Re: (Score:2)

        by q_e_t ( 5104099 )
        More recent builds tend to be triple glazed as companies, even if it is a 'tax write off' don't actually want to be almost literally burning money. A tax write off reduces your tax bill but is not free money.

      • Re: Most commercial buildings would make bad house (Score:5, Interesting)

        by sonoronos ( 610381 ) on Wednesday December 07, 2022 @03:48AM (#63109722)

        Actually, commercial buildings are significantly better built than residential units. Commercial buildings have steel reinforced concrete floors so you would never hear your upstairs neighbors, triple glazing, floor to ceiling windows. The interior walls could be made arbitrarily well and to arbitrarily high levels of noise reduction because they are NOT load bearing.

        The real problems with commercial buildings as residential is that only a small fraction of the space available on a single floor has access to windows. This is around the perimeter. meaning that the units themselves must be large otherwise the space is generally considered uninhabitable. This results in high per-unit prices, aka âoeluxuryâ apartments. Commercial spaces are rented out as curtain walled square footage. This means that you can rent out enormous open spaces. Also, in commercial real estate, you can make people sit around in enclosed spaces with no windows, which is verboten in residential.

        Nowadays, residential buildings around 6 floors or less have become mostly about wood construction. It builds up fast, is cheaper than commercial construction, and is easier to deal with when it comes time for eventual demolition. A steel and concrete commercial building is MUCH better built than that, for better or for worse.

    • Re: (Score:2)

      by q_e_t ( 5104099 )
      Insulation can be added to buildings, and anyway more recent office builds are better in this respect, and indeed I've worked in modern ones in which the problem in winter was it was too warm and the building management system didn't let you open the windows. Adding insulation, though, isn't that radical a concept. The real issue is the amount of internal volume compared to external causing issues with light, and that's harder to change, and light pipes might help but aren't quite the same. The large window

    • Despite conversions, they are left with large windows, high-ceilings and poor insulation

      High ceilings and poor insulation describes about half of the UK housing stock, including my house. I love having high ceilings (3m or so here).

      But yeah the fire safety thing is something of a problem. Evacuating a bunch of adults during the day is a different prospect from a bunch of families at night.

  • Too bad... we'll just have to deal. (Score:5, Insightful)

    by Dutch Gun ( 899105 ) on Tuesday December 06, 2022 @07:25PM (#63109096)

    I worked for about a year and a half at a contract job at a downtown high rise just before the pandemic hit. The commute was absolute misery... a real daily slog both ways, and the parking was just stupid expensive and insufficient. Normally I'd have shifted my hours later, but if I came in late, I wouldn't get a parking spot.

    Really, although the job was nice, trudging into work every day was miserable, and there was zero reason not to work remotely. In fact, if I wasn't feeling well or got snowed in, I DID work remotely, but for reasons, we could only do that in exceptional circumstances. Now, people realize there's no reason that shouldn't be the norm, with coming into an office the exception. We're going to lead better, happier lives because of it. Or at least, I will. The social butterflies or people without a quite, private home office won't be as happy without an office I guess.

  • Prices went down more than mortgagors could afford. With houses, people mail the keys. With commercial real estate, itâ(TM)s a tax writeoff.

    Either way, the banks are in a wold of counterparty hurt, waves batter the rest of the economy and trigger a Great Recession

  • In the grand scheme of things, that money isn't lost but shifted elsewhere. Shit happens.

    • In the grand scheme of things, that money isn't lost but shifted elsewhere. Shit happens.

      Let me fix that for yu.

      In the grand scheme of things, that money isn't lost but shifted elsewhere. Good things happen. Less carbon footprint, more small businesses move to the burbs, making neighborhoods more enjoyable, people can use the time formerly wasted on commuting to do things like walk around the block with their dog, meet neighbors, or just take some time to just enjoy life.

      And then there's the money saved from not having to commute. That alone nullifies the "cost-of-living" crisis.

  • potential profit lost vs. cost (Score:5, Insightful)

    by Sleeping Kirby ( 919817 ) on Tuesday December 06, 2022 @08:35PM (#63109210)
    Can we collectively stop referring to lost potential revenue as "cost"? It seems like summary is saying that commercial real estate companies will lose estimated potential profit and the city will collect less taxes. But neither is, explicitly a "cost", as in, someone needs to pay something for something. As someone that learned English as a second language, I understood someone would say "cost" instead of "lost revenue" as a way to emphasize or exaggerate a point. But, realistically, not gaining something is not the same as a paying to gain or maintain something. Like if I bought a lottery ticket and didn't win, I wouldn't say, "Not winning the lottery cost me 10 million dollars." And industry not being able to gain as much profit is not as much a cause for concern as a city actively having to pay a large amount.

    • Re: (Score:2)

      by jred ( 111898 )
      Lost revenue can indeed be loss. They don't pay cash for those buildings. If the revenue is reduced, they still need to pay the bank their monthly notes. To simplify, if you buy a car and have a $100 monthly note, but you drive for Uber and make $200 month, your revenue covers your costs. If you stop driving for Uber, that $100 becomes a loss.
      • Agreed. It can turn into overall loss or cost. But it itself is not. Like, in your example with uber, no one would say "The lack of riders in downtown has cost ex-uber drivers X amount of money this year!" They would say "The loans ex-uber drivers took to buy their cars costs X amount of money each year." In this case, any loans these real estate companies has taken out and/or the cost of maintaining the company cost them money. Not the potential lost revenue. You gain revenue to cover the costs. Whether th

  • You can't fix city budgets by converting (Score:5, Insightful)

    by MeNeXT ( 200840 ) on Tuesday December 06, 2022 @09:08PM (#63109254)

    commercial real estate to residential. Commercial real estate is taxed at more than double residential. It doesn't solve a cities problems. While some buildings may be converted many are not designed for residential purposes. Building codes would need to be rewritten. Zoning would need to change. City budgets need to be reduced. A ship this large will takes years to change direction and I would bet that business will adjust before governments do.

    I have no faith, with all the fake news, that this can be accomplished quickly. We will adjust within 5 to 10 years. Cities that were managed well will feel a little pain. The cities that weren't are going to have hard time of it. In the end citizens will pay.

  • It won't cost them anything (Score:4, Insightful)

    by schwit1 ( 797399 ) on Tuesday December 06, 2022 @09:22PM (#63109274)

    Money that wasn't theirs to begin with can't be lost. They made financial assumptions and the were wrong. Such is life

    They need to change how they do things in light of the new paradigm, make new assumptions of lower expected revenue and move on. And quit whining.

  • you want downtown housing? (Score:3)

    by argStyopa ( 232550 ) on Tuesday December 06, 2022 @09:34PM (#63109300) Journal

    The only way people will live there is if it's NOT a place for shitty people.

    cf Cedar Square West, Mpls. https://en.wikipedia.org/wiki/... [wikipedia.org]

    "...The complex was thus initially a mixed-housing initiative earmarked for both high-income and low-income residents, including renters and leasers. According to Rapson, who designed the towers and still lived and worked in the neighborhood, the buildings' new owners did not take proper care of the buildings after converting the structures into subsidized housing to benefit from a 10% state subsidy in addition to regular rental revenue. Members of the media have used nicknames such as the "Ghetto in the Sky", and the "Crack Stacks" to describe the housing complex.[6]

    A string of homicides in the early 1990s also contributed to a negative image. ..."
    The rest of wiki tries hard to spin it as 'not so bad' but...it's still a shitty place.

  • Example: Biggest building in MO for $4 million! (Score:3)

    by turp182 ( 1020263 ) on Tuesday December 06, 2022 @10:04PM (#63109340) Journal

    How low can commercial real estate go?

    Biggest office building in the state of Missouri, a cool $4 million. 1 million square feet.

    https://www.ksdk.com/article/n... [ksdk.com]

    (it doesn't have parking, I have a friend that worked there, hated it)

  • Good. (Score:3)

    by drwho ( 4190 ) on Tuesday December 06, 2022 @10:42PM (#63109390) Homepage Journal

    Schaedenfreud. Everything got so expensive in cities that the quality of life was going down. Only the most ritzy of stores could survive, along with a few convenience stores. Also crime, homelessness, and drug abuse were rampant even in areas that had been 'gentrified'. I am most familiar with this happening in Boston but it is common in other cities as well.

  • Remote work has emptied offices and they've stayed empy, offices that were often once appartments or are in areas suitable for apartments and these property owners flat refuse to repurpose the real estate, instead hanging on to 'losses' from it. In my city we have literally thousands of offices that have been empty for 10+ years and we have a housing crisis. 'Gutting' is a crazy way to say the property owners are unwilling to repurpose property.

  • And converting to residences won't work. Hmm. Where else do masses of human beings have to go, stay put for 8 hours and then return back home?

    Schools, that's where.

    Yes, the idea of young kids forced to commute long distances is atrocious and should NEVER happen. But this can work for college students.... Use student pass for train to the CBD, get educated, walk in local park, go home.

    • Re: (Score:2)

      by Mal-2 ( 675116 )

      Also, some of that space can be converted to dorms rather than apartments. The isolation rules are a lot looser, and they'd use the existing communal restroom facilities rather than having to plumb each apartment. Then the students don't have a terrible commute, they basically have the same thing they have now only it's in the middle of a city instead of closer to the edge of the city.

  • Housing for Homeless (Score:4, Interesting)

    by registrations_suck ( 1075251 ) on Wednesday December 07, 2022 @12:28AM (#63109494)

    Just turn them over to the homeless "as is". They're already living in tents, so this would be an improvement. No need to refurb the buildings. Just let the homeless move into them and manage them as they will. Treat the buildings like huge homeless camps.

  • Care factor: zero (Score:3)

    by Meski ( 774546 ) <meski.oz@gm[ ].com ['ail' in gap]> on Thursday December 08, 2022 @07:51PM (#63115294)
    Apart from the owners of the cities, who cares? None of us really liked having to go there every day.

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