Looking ahead: the future of cities and business districts

Challenges Facing Commercial Real Estate

The past six months have been difficult for commercial properties. With the end of the pandemic nowhere in sight, large commercial tenants are pulling out of leases, retracting real estate deals and halting their plans to return to the office. The impact of these empty office spaces is having adverse effects on other types of businesses that occupy downtown cores. Since the beginning of the pandemic, 163,735 U.S. businesses have shut down, and a recent Yelp report predicts that 60 percent of these businesses will never be reopening. With some major cities reporting fewer than 10 percent of office workers having returned as of August 2020, and companies rethinking their need for office spaces, many commercial real estate owners are wondering what the future holds for business districts.

Short Term Fixes

Unfortunately, for commercial property owners or businesses with long-term leases, they are still being forced to pay for this unused space. This is forcing major commercial real estate management companies to look creatively at the use of their spaces and assets for alternate revenue streams. With the trust in public transit plummeting, parking lots are becoming an important revenue stream for commercial properties. Yet, with fewer commuters on the road, they have been forced to find creative solutions for this asset. Asset management companies have emerged that focus solely on how to utilize parking to maximize revenue. Apps and software have even been popularized to match those who own parking lots to those looking for parking. This includes entertainment companies looking to store trailers or delivery companies looking to park fleets of vehicles. Since many commercial properties already own large parking spots, renting out these existing assets can help them make up lost revenues caused by the pandemic.

It’s also becoming increasingly important for businesses to support their community. With many offices sitting empty, they are using their spaces to support businesses and organizations that could benefit from empty space. The life sciences industry, for example, is benefiting from empty offices that have been repurposed into medical and research facilities

Looking Long Term

For companies looking to return to the office, most are expecting that they will be able to do so by spring. Although this shows hope that city centers may come back to life by mid-2021, there is still a great chance that the repercussions of the pandemic will last longer for retailers and restaurants. Without a steady stream of foot traffic, many businesses in downtown cores have had to close permanently. When companies return to offices in mid-2021, the downtown core will likely not look like how they left it. The economic impact is expected to last. This means that it may take months before new businesses and restaurants open in downtown cores, long after organizations have returned to their office spaces.

When they do return, many are expecting to make remote work a permanent option, at least part-time. This means that many employees will only be commuting to city centers a few days a week. Assets that they rely on in the downtown core will need to shift to meet these changing demands. For instance, with reliance on public transit diminishing, many commuters will be driving into the city centers. Before the pandemic began, these commuters would typically rent monthly parking spaces from their office or from nearby buildings. With office work becoming part-time, parking assets will need to change. Offices will need to establish flexible leases, where commuters only pay for the time they use the space. This could mean encouraging space sharing between employees that are in the offices on different days.

Part-time office work will also be needed to relieve pressure on the spaces that are used. With physical distancing likely to become common, even after a vaccine is found, buildings that have elevators and open office spaces will find it harder to secure tenants. Spaces will also need to be reconfigured to allow employees to physically distance, meaning that enclosed office spaces are likely to make a comeback. Businesses that need all employees to return to work will also be looking to increase the square footage of their office, which will help create adequate space for all employees to safely physically distance.

In the long-term, city centers will continue to be the center for cultural hubs. With better healthcare facilities, denser populations and entertainment amenities, the future of business districts remains optimistic. Although they have traditionally been used as hubs for corporations, there is a very real possibility that downtown cores will morph into spaces for community. After months of feeling isolated and having to distance from others, community is what many people are missing. The shift was happening even before the pandemic – more cities were looking at how to build green spaces and cultural hubs into the sea of high rises. The pandemic has only helped to highlight these needs.

Facing the Future

However optimistic we may have felt at the beginning of 2020, this has rapidly deteriorated as the pandemic enters its eighth month. With no vaccine in the near future, the consensus is that 2021 will resemble the previous year, unfortunately without the hope and financial aid that we saw in 2020. And even after a vaccine, citizens will be hard-pressed to return to the same routines as they had before the pandemic. Having employees work remotely for this period of time has proven that expensive leases in city centers are no longer needed to do business. As many large companies vow to make remote working permanent, there is no longer the prestige of having a top-floor office in a busy business district. Although no one can guarantee what the future of cities looks like, we are certain that it will never return to how it was.