Yahoo Finance Downtowns are still struggling, but there is a way to save them from becoming dead zones
The foot traffic in urban cores and office occupancy levels are a fraction of their pre-pandemic days, so any recovery downtown will require a pivot from being just centres of commerce to places of fun that offer unique experiences that can’t be had elsewhere.
Downtowns are struggling so much to regain their vibrancy that a report by Karen Chapple and others at the University of Toronto’s School of Cities earlier this year wondered if they were on life support. The report — The Death of Downtown? — used the location of cellphones to compare downtown occupancy and activity levels in 2019 with those at the end of 2022.
The results were not encouraging. Cities that were once the envy of all for their success in generating wealth are struggling to attract people back to their downtowns. For example, social and economic activities in downtown San Francisco, one of the hardest-hit cities, were down 69 per cent from their pre-pandemic level. Downtown Portland experienced a 63 per cent decline.
The same thing is happening in large Canadian cities. Activities in downtown Calgary in November 2022 were at 43 per cent of their pre-pandemic levels, while Montreal was at 46 per cent, Vancouver at 47 per cent and Toronto at 53 per cent. The latest data for spring 2023 puts Toronto at 42 per cent.
The activity levels in Edmonton, Ottawa and Quebec City are slightly more than 50 per cent, while London, Ont., ranked the highest among Canadian cities with activity intensity reaching 79 per cent of its pre-pandemic levels.
Most downtowns in the 62 cities analyzed had not fully recovered to pre-pandemic activity levels. Some were approaching the pre-pandemic levels, while a handful were busier than before, such as Salt Lake City, which was 35 per cent busier than in 2019.
The study also found that recovery rates depended upon “the presence of lower commute times and a lower share of employment in professional, scientific, and technical fields, information, and transportation and warehousing.”
The downtown recovery was also more pronounced in less populated Sunbelt cities in the United States. Bakersfield and Fresno, Calif., El Paso, Texas, and Salt Lake City were among the cities with higher-than-pre-pandemic activity levels.
The other striking finding was that downtown recovery rates lagged the recovery in the rest of the city. That suburbs and midtowns were able to recover faster than the urban cores is a major concern for cities that have hundreds of billions of dollars’ worth of commercial real estate. Office vacancy rates have remained stubbornly high since the start of the pandemic.
Whereas less populous Sunbelt cities fared well, the same is not true for more populous cities with large office real estate portfolios. Earlier this week, the Wall Street Journal said vacancy rates were rising in Atlanta and companies there are “competing to unload space in the sublease market. Office values and rents are falling. Developers are delaying new office projects, while office defaults are mounting.”
The office vacancy rate in downtown Toronto, Canada’s largest employment hub, reached 15.8 per cent in the second quarter of 2023, according to a report by CBRE Group Inc. From record low office vacancy rate before the pandemic, Toronto and other large office markets across the country are now experiencing record high vacancy rates.
The challenge for cities is that the link between economic recovery and the demand for office space is broken. In the past, more workers showed up at offices as economies recovered and employment grew. Working from home and hybrid working have altered the link between jobs and office occupancy so that even growth in the number of office jobs is likely to have a lesser impact on the demand for office space.
Lessons Canada can learn from Britain's greenbelt development
Suburban housing gains affected more than just home prices in cities
Cities have gone through boom-and-bust cycles in the past, but this time is different. Hybrid work is likely here to stay and that will impact any downtown recovery since millions of square feet of office space were built on the assumption there would always be a demand.
As a result, owners of office towers in the urban core and downtowns in general need to reinvent their properties. These places must become destinations with new purpose by offering unique experiences that will necessitate a visit. Health care, concerts and festivals, sports, hospitality and fine dining are some of the ways downtowns can attract people back. With improved transportation and a welcoming attitude, downtowns can reverse the blight they face today, but it won’t be easy.
Murtaza Haider is a professor of real estate management and director of the Urban Analytics Institute at Toronto Metropolitan University. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website, www.hmbulletin.com.
