In the wake of the Covid-19 pandemic, urban landscapes are undergoing a transformation. City leaders and real estate developers are faced with the task of revitalizing downtown areas. While office-to-residential conversions hold promise, experts emphasize the need for a multi-faceted approach that goes beyond this singular solution.
The conversion of outdated office spaces into new, functional units like housing is undeniably vital. However, industry insiders, including real estate professionals and consultants to government bodies and business-improvement districts, advise caution against viewing this conversion as a panacea for downtown renewal.
“Cities recognize it’s not a panacea,” noted Kate Collignon, a partner at HR&A Advisors, a consultancy specializing in real estate and economic development projects. “It’s an important part of the conversation but it can’t be the sole solution.”
Over three years after the Covid-19 pandemic began, numerous U.S. city centers still struggle to regain their former vitality. This can be attributed largely to the sluggish return of office-related activities and ongoing concerns regarding public safety. According to Placer.ai’s comprehensive office building index, which analyzes foot traffic data from 800 office properties nationwide, the first half of 2023 witnessed a 39.7% decline in office foot traffic compared to the same period four years prior.
Experts like Collignon, who actively examine downtown areas in the post-pandemic landscape and collaborate with various stakeholders from public and private domains, stress that transforming downtowns into attractive living, visiting, and staying destinations remains pivotal.
Collignon stated that a blend of factors has diminished the vibrancy of downtowns at a time when these urban areas must appeal to residents, visitors, and workers. These factors encompass heightened office vacancies, reduced pedestrian movement, and decreased patronage to retail and food establishments.
Across the nation, city officials in various downtowns are actively exploring incentive programs, zoning regulations, and other tools to facilitate the conversion of office buildings into alternative uses. However, Collignon emphasized that the success of these transformations hinges on a robust residential market.
She stressed the importance of creating a downtown environment that is alluring to residents. She identified a primary challenge faced by many cities, especially those previously dominated by office spaces: downtown is often not perceived as a destination for local residents. People tend to avoid downtown unless they have work-related reasons to visit.
A Fresh Start
For a downtown revival to be successful, experts emphasize the need for improved coordination among real estate owners and leaders driving the revitalization initiatives.
In a standard downtown setting, various buildings have distinct owners, each with their own somewhat conflicting visions and objectives for their properties, according to Louis Archambault, a partner and vice chair of the real estate practice at Saul Ewing Arnstein & Lehr LLP.
Following the pandemic, cities are bracing for a potential decrease in tax revenues from commercial properties, particularly office towers experiencing higher vacancy rates. This is due to declining valuations amid a less robust leasing market.
With trillions of debt supporting commercial properties on the verge of maturity in the upcoming years, coupled with a significantly elevated interest-rate landscape compared to their initial financing, the potential for office tower bankruptcies and foreclosures is arguably at its highest point in decades.
In certain respects, this distressed scenario might offer a chance for an individual or developer to acquire properties—probably at a reduced cost—and establish a cohesive district, suggested Archambault.
He explained that having a down period is almost an essential element of revitalization, allowing for the renovation of older properties, a fresh perspective on their potential, or even redevelopment by a single owner into a new concept.
As an illustration, Archembault pointed to Miami’s Wynwood and Design District neighborhoods. These areas saw a transformation as a group of real estate owners collaborated to revamp previously dilapidated industrial buildings, creating a unified development district guided by a singular vision. This shift led Wynwood to emerge as a thriving development hub, with the original vision evolving into a denser environment and larger real estate undertakings.
According to Mateo Romero, a partner at the Miami-based real estate firm Gridline Properties, a thorough examination of policies regarding adaptive reuse should be a core aspect of city officials’ strategies for downtown revitalization.
Romero emphasized the need to reshape the constructed environment. Buildings are constructed to endure for many years, and redeveloping them is both costly and time-consuming. He suggested adjusting the framework to suit the evolving demands of the community, given the rapidly changing landscape.
In areas like Wynwood, where Gridline has undertaken multiple projects, the neighborhood’s transformation would have been unattainable if local regulations hadn’t permitted the type of adaptive reuse that initially shaped the neighborhood, Romero highlighted.
While creating a strategic vision or comprehensive plan for downtowns is not a novel idea, real estate professionals suggest that in the aftermath of the pandemic, it could be valuable to reexamine those plans and objectives to identify areas requiring modification.
Long-term Investment or Short-Term Gain?
In the United States, urban centers have predominantly been shaped by prominent corporations that have established themselves in gleaming skyscrapers over many decades or even centuries.
However, as more individuals embrace remote work or adopt hybrid arrangements, downtown areas must transition from being primarily centered around corporate entities to fostering a diverse range of businesses, including retailers, as well as attracting a broader spectrum of individuals.
Many of the objectives and strategies that cities are currently exploring, such as converting spaces for residential use or implementing infrastructure projects, are ambitious and long-term in nature, demanding extensive planning and financial resources. Nonetheless, according to Billy Grayson, the Executive Vice President of Centers and Initiatives at the Urban Land Institute, there are immediate measures that cities can undertake to draw people downtown beyond the context of office work.
Grayson highlighted a successful strategy that involves actively curating public spaces and devising methods to generate transient engagement. This can encompass initiatives like pop-up eateries, street performances, concerts, and outdoor film screenings within downtown parks. He provided an illustration of this approach with the Cincinnati Center City Development Corp., a nonprofit real estate development and finance organization committed to rejuvenating Cincinnati’s urban nucleus in collaboration with the city and the corporate sector.
This group has adopted a multifaceted approach to draw people downtown, which encompasses rejuvenating condemned or abandoned structures, facilitating new constructions on vacant parking lots and other available spaces, and implementing comprehensive programming throughout the week.
To execute substantial strategies like conversions and enhancing infrastructure to establish better links between downtown areas and adjacent neighborhoods, it might be necessary to relinquish immediate revenue in order to foster long-term economic growth and engagement. Grayson emphasized that while this could involve sacrificing short-term gains, federal incentive programs exist to help cities offset some of the expenses tied to infrastructure investments and even potential conversion projects.
Efforts to revive retail are also under scrutiny, given that downtown businesses that endured the challenges of the pandemic continue to grapple with the consequences of reduced office attendance, which fluctuates throughout the workweek.
For municipalities, the focus extends beyond merely leasing these spaces; it also involves a thoughtful analysis of activities taking place at the street level of downtown edifices and an endeavor to diversify their uses.
In more tangible terms, this could entail cities reevaluating regulatory controls or devising methods to grant broader accessibility to retail and business proprietors. This could potentially involve downtown or public entities taking on master leases for ground-floor spaces to oversee their utilization or assuring leases for startup ventures.
However, while modifications in regulations, incentives for challenging endeavors like office-to-residential conversions, and innovative programming all factor into the equation, what could set apart the future success of downtown areas is effective leadership, according to Collignon. This encompasses not only the leadership of public officials but also within the real estate sector and among major companies that maintain a presence downtown.
As demonstrated in previous economic downturns, when these entities align their efforts, it tends to result in quicker clarity regarding the types of policies that will yield prompt impacts, Collignon pointed out.
For the majority of U.S. downtowns, taking steps to confront present issues sooner rather than later and confronting the realities of the office market directly will be crucial.
