10 Predictions for 2023: No. 4 - City Centers Start to Get More Residential
The best, and inevitable, course of action is to reimagine and rezone much of the excess office space for residential use.
(I’m making 10 predictions for 2023. Find the links to my others at the bottom of this post.)
In February of this year, New York City Mayor Eric Adams told leaders of some of the city's largest employers that it was “time to get back to work,” his oft-repeated phrase for getting more of the city’s 1.6 million residents who work in the “office sector” back to the office:
“We can’t send mixed messages,” Adams said of different major banks and tech companies that continue to delay return dates. “We can’t keep kicking the can down the road.”
The mayor said he met with 100 chief executive officers this week as part of scheduled meetings his office has with both small businesses and corporations in the city. He used the meeting to coax them into participating in his summer youth jobs expansion and to get their workers back into the office to stimulate the city’s economy.
“Now is the time for us to get back,” Adams said in a press conference for his first budget presentation. “I’m hoping within the next few weeks the CEOs map out a real plan of ‘this is when you need to come back.’”
At the time, roughly 28% of NYC office workers were back in the office on any given day. Yet, less than a month later, Mayor Adams had already begun to soften his stance on the issue:
“It is going to take us some time before we define what [the workplace during] COVID is going to look like,” Adams told reporters on Thursday at an unrelated press conference at the Hunts Point Cooperative in the Bronx. He said that some employers, like those in the tech sector, are “operating differently.”
What I’d like to imagine the mayor learned in those three weeks is what many mayors, urban planners, real estate developers, local officials, companies, and residents, will start to realize in 2023...
Only a third of office workers are coming back to the office. Many cities now have too much office space. The best, and inevitable, course of action is to reimagine and rezone much of this excess office space for residential use.
Your city’s downtown will never look like it did before the pandemic.
The more quickly your city’s public officials, urban planners, corporate executives, and real estate professionals realize this, the better they can plan for what’s next.
According to The New York Times' Conor Dougherty and Emma Goldberg, San Francisco’s downtown, at 40% of pre-pandemic office occupancy, is at, or near, the bottom of big city business districts.
So what is next?
I believe that going forward, the natural equilibrium of office occupancy will be around 36%.
Here’s my logic...
According to a 2022 survey from Gallup of people whose jobs can be done remotely:
🏠 34% want to be fully remote
🚗 60% want hybrid work
🏢 6% want to be fully in office
If those hybrid workers hope to work in the office ~2.5 days per work, the math works out to ~36% of people in the office on any given weekday.
Any business district with office occupancy rates significantly higher than 36% of pre-pandemic levels will face downward pressure on occupancy in the long run.
Rather than fight this pressure, cities should adapt to it.
One form of adaptation is reimagining -- and rezoning -- much of that commercial office space as residential space.
If that happens, who wins?
🙋🏽♀️ Residents - more housing supply lowers rents
🌎 The planet - more densely built supply has a lower carbon footprint
Who loses?
👩🏼💼 Commercial real estate professionals - rents and values will fall
🏪 Worker-centered businesses - think of the fast-casual restaurant that caters to office workers but not to families
To be clear, this transition itself won’t happen in 2023, but the last holdouts of the get-back-to-the-office crowd will stop deluding themselves into thinking you can bully people into pre-pandemic behavior.
Instead, 2023 will be the year when an influx of city decision-makers, whether out of capitulation or economic incentives, start to prepare for this urban reimagining.
Emil Skandul explains in Insider that, nearly three years into the pandemic, this realization hasn’t happened yet.
Empty offices can become apartments to ease housing pressure while also bringing more people back to downtown areas. But after two years, few buildings have been converted. Jessica Morin, the head of US office research at the commercial real-estate firm CBRE Group Inc., 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.
In 2023, that “noticeable increase” will begin.
If you’re interested in more ideas for what the city of today, and tomorrow, should look like, check out ‘The NOVA Cities Index,’ a framework for the most forward-thinking cities that I co-developed as part of a group of city experts from Europe and the U.S.
I’m making 10 Predictions for 2023. Read my others below.
This comment makes me think about my time in Germany, where social ties are stronger within villages because of the dynamic of using their city centers in a more residential, pro-social way.
Downtown SF hasn’t made this post-Covid adjustment, and I’ve heard that it’s often a ghost town because it’s still catering to an audience that no longer exists.
How do you think the shift in office work will affect the social framework of the city?