Cities grapple with major changes three years after pandemic
Zachary Halaschak
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Major cities are revamping downtown areas three years since the World Health Organization declared the coronavirus outbreak a pandemic, as office space still remains in low demand and rising crime affects the dynamic of America’s urban spaces.
Many urban workplaces are still entirely or partially remote, central business districts are flailing given the decline in commuting workers, and some cities are grappling with upticks in crime as people relocated to the suburbs.
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Occupancy rates in downtown areas across the country are clocking in at 50.1% of their pre-pandemic levels in the past week, according to Kastle Systems, which tracks security swipes into buildings in 10 large cities.
Some cities have had more workers return to in-office work than others, particularly in states that had less restrictive COVID-19 mitigation efforts. Austin, Texas, is approaching 70%, while Houston is above 60%. Meanwhile, New York is still below 47%, and San Jose, California, is just over 41%.
James Bailey, a professor at George Washington University’s School of Business, noted that smaller cities — for instance, Wichita, Kansas — haven’t been hurt as much by the coronavirus-era changes, but bigger cities such as New York and Washington, D.C., have experienced profound shifts as a result of the pandemic. That is because the larger cities had very concentrated central business districts, or CBDs, that are important to their vitality.
“They are going to have a lot fewer people walking around them because of the remote work movement. So maybe on any given day, if we’re lucky, we’re going to have about two-thirds of people back and they’re going to be a lot grubbier than they were in January 2020,” he told the Washington Examiner.
Grubbier in the sense that some major cities now feature boarded-up windows due to closing retail stores that languished without demand, as well as upticks in crime, Bailey explained. Cultural elements have suffered as well, as smaller museums and other venues struggle to make ends meet with fewer potential customers venturing into central business districts.
Companies have used the pandemic and subsequent changes in in-office work to reduce their real estate footprint. If a company needed 30,000 square feet of office space before the pandemic and now only needs half of that amount with hybrid employees coming in on rotating days, a lot of money can be saved.
For example, if office space is $50 per square foot per year in downtown Washington, D.C., a company with 50,000 square feet of space was shelling out $208,000 per month in rented office space alone. With a reduction to just 20,000 square feet due to remote work, that company saves a whopping $1.5 million per year that can be used to reinvest in the business or raise wages to keep employment competitive.
“That’s a big loss for the firm that owns that building,” Bailey said.
As a result, what is becoming more frequent in major cities is that some commercial real estate is being converted into residential real estate. For instance, Washington, D.C., Mayor Muriel Bowser has been pushing to get office-only districts rezoned for more mixed-use properties.
Bowser was reelected for a third term in 2022 and has sought to bring 15,000 residents into downtown Washington, D.C., by converting unused office space into residential units.
The district saw the largest number of office-to-apartment conversions in the country between 2020 and 2021, with 1,565 new units, according to data from Yardi Matrix, which provides data services for property managers. Philadelphia also notched more than 1,500 converted units during that time and Chicago added more than 1,100.
“Existing building architecture is the critical starting point. Not all buildings are equally threatened by the work-from-home revolution. Larger office buildings in abandoned central business districts are better suited to conversion than the often-smaller office complexes distributed around the suburbs,” said Doug Ressler, manager of business intelligence at Yardi Matrix.
The mayor has also been putting pressure on the Biden administration to call federal workers back into the federal government’s extensive office space that it owns across the district.
“We need decisive action by the White House to either get most federal workers back to the office most of the time or to realign their vast property holdings,” she said.
By relocating people closer to CBDs, cities can capture more population density in those areas. The knock-on effects would be more demand for local businesses and restaurants that have closed up shop or are floundering from the shift to remote work. For instance, some 1,800 businesses closed in just one downtown Washington, D.C., zip code from the start of the pandemic to March of last year, according to the Washington Post, while fewer than 500 did the same in the entire Southwest quadrant of the city.
Ryan Streeter, director of domestic policy studies at the American Enterprise Institute, pointed out that while many major cities such as New York, Washington, D.C., and Chicago have taken a beating during the fallout from the coronavirus and the violence and rioting in the wake of George Floyd’s death in 2020, the suburbs have seen a surge in growth as a result of people relocating away from city cores.
“I think the biggest change that’s really happened since the pandemic started is that these twin issues of affordability in highly productive but high-cost cities, and the importance of public safety, are these two issues that I think our large coastal cities, like New York and San Francisco and [Los Angeles], they just didn’t realize how much the people in their cities were frustrated by those things until those crises started,” Streeter told the Washington Examiner.
Crime has also increased in some major cities.
“Crime is reduced if there are busy streets around,” said Bailey. “That goes all the way from petty theft, to prostitution, to narcotics trading.”
For instance, a robbery may be more likely to occur if someone is alone on a street versus in an area filled with people and potential witnesses.
Some anti-crime advocates have also blamed the pandemic-era social justice protests that formed in the wake of George Floyd’s death as being part of the problem. Various political figures on the Left advocated widely for defunding the police, or reducing police funding, given well-publicized instances of police brutality and the resulting public blowback.
While the changes to the employment landscape (i.e., increased levels of remote work) will certainly stick around in the future, there might be a bit more of a shift back to offices this year if there is a meaningful recession or slowdown in the red-hot labor market.
The excessively tight labor market, and some labor shortages, gave workers the upper hand in contract negotiations. Workers had the ability to push for remote work because if a company didn’t offer it, they could easily get another job with an employer that did. That dynamic caused businesses to compete with each other for workers and oftentimes offer remote work as a hiring incentive.
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If the country falls into a recession, employers will once again have the upper hand in negotiations. That could mean that some companies could have their workers come into the office more, and employees would have less say because they want to hold on to their jobs.
“Clearly, in any recessionary environment or even [a] slight downturn economically, workers will lose that leverage,” Streeter said.