The pandemic has disrupted traditional real estate and office space more than any tech innovation ever could. From hub-and-spoke strategies of real estate to flexible and hybrid work-from-home/in-office strategies for employees, organizations are changing quickly how they approach real estate and office space.
Many organizations are struggling to adapt to the ever-changing new normal. And so will many central business districts in major cities, according to a new report in the New York Times. The paper partnered with real estate data firm CoStar to analyze the makeup of downtowns in several major U.S. cities. It found that the cities with the largest percentages of office space compared to residential or other space may be the most in trouble in emerging successfully from the pandemic.
Boston has the highest percentage of its central business district real estate tied up in office space, at 83 percent. San Francisco, Washington, D.C., and Chicago follow. San Diego has the lowest percentage at 19 percent.
What does this mean? For one, as the Times points out, the cities with the highest percentage are extremely reliant on the tax base of office property values. If these offices are vacant and their values decrease, that kneecaps the city’s finances. In the past, cities saw commercial office buildings as the most lucrative opportunity for development. In Boston, for instance, a city with so many colleges and universities and other organizations that don’t pay real estate taxes, office properties were seen as a way to expand the tax base, resulting in its current glut of downtown office space.
The story points out that most cities have long recognized the importance of diversifying the types of space in their central business districts, and many, like Dallas, had begun moving away from a majority office space even before the pandemic. But the pandemic has certainly speeded up that movement and for some cities, it may be difficult to change quickly enough.
This post was submitted by Greg Zimmerman, deputy editor, Facility Market.
