If the year 2022 draws a war between businessmen and workers for the return to the services that few could impose, this 2023 is the time to assess the economic implications for the big cities of this change of practice.
Major cities in the United States will continue to operate with an occupancy rate below 50% with no sign of an increase. “If you go to the offices, you don’t find anyone. Even if the collaboration is advocated, I see that it is not possible to force them to come back to us,” says an employee at Amazon’s headquarters in Seattle (Washington) under the condition of confidentiality.
The US West Coast city, where Microsoft is also based, ranks seventh in the nation in the highest number of workers in the technology sector with about 284,000 workers, out of a total population of 734,000. “Downtown looks like a fantastic town,” commented Jeff Bezos, an employee of the giant.
Its streets have 40% less pedestrian traffic compared to 2019, according to data from the Seattle Downtown Association. The average size of the city makes the effect of flight more visible than in other cities with the same problem, but with more tourists, such as New York, San Francisco, Chicago or Philadelphia.
This led his mayor, Democrat Bruce Harrell, to acknowledge the “good old days” when all those working downtown “aren’t coming back.” Daily life in Seattle consists of apartment buildings full of people glued to their computers – US tax laws force workers to establish their residency in a certain city – while modern office buildings are deserted.
Concern has grown among politicians, academics and economists, who have begun to ask for answers to alleviate the effects of this event on revenues, trade, commerce, restaurants, public transport finances, cleaning and the health system.
Convened by the Washington-based think tank the Brookings Institution, business and government leaders from New York, Chicago, Philadelphia and Seattle met at the Roads of Destruction to rethink the future of the state’s central business.
There is a widespread fear that big cities will enter what in the US they call “fate loop”, in Spanish “fatal loop”, a decrease in income and expenditure, which lead to the closing of businesses, an increase in crimes and the decline of the most dynamic areas for the economy.
More recent examples are the bankruptcy that the city of Detroit (Michigan) sank in 2013, after the decline of the automobile industry and the decline of New York during the 70s and 80s because of the lack of income that devastated the neighborhoods. like the Bronx or Lower Manhattan.
“We are already living in the same New York that we lived in at the beginning of the pandemic,” Governor Kathy Hochul warned last November when she presented together with Mayor Eric Adams a report with 40 proposals to deal with the state. . The vacancy rate for office buildings in the Big Apple stands at 22%, the highest since the 1970s crisis made the place dangerous, according to the report.
Cataclysm in rent
The immediate consequence of teleworking has been an increase in housing and rent prices. More than 60% of this historical rise experienced by 2020 can be attributed to this reason, according to conclusions from the Federal Reserve Bank of San Francisco.
For this reason, experts believe that the most obvious step would be to convert office buildings into apartments to lower the cost of housing and attract people to city centers. Although this solution is not as simple as it seems. “It is easier to speculate than to implement and use,” observe Moody’s analysts.
It is estimated that there is a total of 305 million square meters of office space in the US looking for tenants, 13% of the market, while companies have begun to cancel their contracts. To this must be added the wave of layoffs in technology companies and banks that have already left almost 125,000 employees on the road, according to Forbes Analysis.
More recent examples include Twitter’s decision to shut down its services. Meta will not renew its contracts for nearly three spaces of 140,000 square meters in New York. And in San Francisco, the Salesforce Skyscraper, opened in 2018, remains empty.
Arpit Gupta, an economics professor at the Stern School of New York University, who predicts an “apocalyptic” event in the value of the market this year, was the first to get excited about what could happen in the next 12 months.
Because, as Gupta states, the cataclysm has only just begun. 61.77% of office rental contracts in force at the beginning of 2020 have not yet expired, so the report considers that the market has not yet been capped. Commercial rental income fell 17% from January 2020 nationwide.
Another factor of the approaching perfect weather is the impact on the real values of these buildings. An example is the skyscraper that the electronic cigarette brand Juul bought for 397 million dollars in 2019 in the Mission district of San Francisco. Now on the market it returns to $155 million, down 60%.
From offices to apartments
The solution most shared by experts, but also the most complex, involves transforming offices into homes. “The owners of this type of property are trying to figure out what to do with it,” confirms an engineer for a large construction company based in New York.
Its original construction makes conversion difficult. They are too tall, with no interior patios to let in natural light, some with too many columns, windows that don’t open, and too much space between the walls. Few observe the regulations in residential buildings, so changing them is difficult and expensive. And, what is most important, it is more expensive per square meter than in residential buildings.
Between 2016 and 2021, across the United States, a total of 218 office buildings were reported, some 36 each year. 40% of the changes were to detached houses, resulting in 13,420 new dwellings, according to the CBRE real estate group. In 2022 there were 42 retrofits across the country.
In New York, the nation’s largest office market, only 3% of buildings could become homes based on their brand names, according to Moody’s. The second option is moving. Properties to receive in hospitality spaces.
“cities continue to attract people who are active there, who are ambitious and who interact with others,” says the architect, who gives several ideas. If there are no houses, hotels, art galleries, memory studios, theaters or even day centers can be taken care of.
Any solution is the most effective, building owners are asking governments to provide incentives to facilitate conversions. While politicians are still in the process of figuring out what will be the best solution to avoid the decline of state seats.
New York City Hall is the first to present a concrete plan to convert more office buildings into 20,000 apartments over the next decade. “The need for housing is desperate and the opportunity offered by the smaller office space is clear,” the mayor said in a statement released Monday.
The plan includes certain measures to ease zoning restrictions — allowing retrofits — and tax breaks for property owners. The plan focuses mainly on the commercial area of Midtown Manhattan, but also in the boroughs of Queens and the Bronx, which are suffering from a housing shortage. A long-term plan that will not be able to avoid the forecasts of the city itself, which estimate a budget deficit of 2,900 million dollars in 2024.