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Remote work is gutting downtowns, will cost cities $453 billion - Business Insider

Remote work is gutting downtowns, will cost cities $453 billion - Business Insider

Remote work is gutting downtowns, will cost cities $453 billion - Business Insider
Dec 06, 2022 2 mins, 10 secs

Even 2 1/2 years later, most city downtowns aren't back to where they were prepandemic.

But the push to convert underutilized office space into housing has been sluggish. .

Even small declines in foot traffic and real-estate use compounding over time will lead to reduced tax revenue and sales receipts for small businesses, ultimately affecting city budgets.

And while city planners are reimagining downtowns, the impact on cities' bottom lines has been devastating; in New York, for instance, the value of commercial real estate declined by 45% in 2020, and research suggests it will remain 39% below prepandemic levels.

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.

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.

A recent NBER paper suggests the new space requirements of remote workers — space for a desk or office, or to accommodate the extra time spent at home — have helped cause housing costs to skyrocket.

The solution to the office-housing conundrum seems obvious: Turn commercial spaces like offices into housing.

Jessica Morin, the head of US office research at the commercial real-estate firm Coldwell Banker Richard Ellis, said there hasn't been a "noticeable increase" in conversions.

Since 2016, only 112 commercial office spaces in the US have been converted, while 85 projects are underway or have been announced, according to CBRE's data.

Residential buildings also have to accommodate shared spaces like hallways, meaning they generally have less rentable space than an office building.

Gupta's study suggested, however, that continually falling office values may kick off more interest from developers in adaptive-reuse projects.

To avoid a commercial real-estate apocalypse, cities will need to streamline conversions.

Overall, combating the death of downtowns requires a reworking of how we think about cities and the value they provide.

While the central business district characterized downtowns in the 20th century, the latest revitalization of cities will hinge on social value.

It would require infrastructure upgrades and the adaptation of public spaces and streets, but, as Gupta noted, office buildings are already ideally situated "smack-dab in the center of the transit network." Meanwhile, research has linked mixed-use areas with lower crime rates than commercial districts

The economic health of cities is intrinsically linked to how space is used or unused, and right now downtowns are undergoing a massive shift

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