Cushman & Wakefield’s debut report, “Reimaging Cities: Disrupting the Urban Doom Loop,” suggested that walkable urban places (WalkUPs) could reverse potential declines with well-thought-out plans to repurpose real estate. On paper, the solution was simple: Convert empty office buildings into residential buildings and put more effort into mixed-use projects.
However, in a more recent study entitled “Reimagining Urban Real Estate Portfolios,” Cushman & Wakefield analysts presented hard data to drive home the current issue of too nuch downtown office and the potential consequences. Specifically, “downtowns across the 15 cities studied in the report had an average of 70% of the entire real estate base in some form of work product, with some cities reaching the high 80% range,” the report noted.
As a result, reimagining an office-centric WalkUP—which describes most downtowns these days—involves more than focusing on conversions.
One Report, Multiple Stakeholders
Cushman & Wakefield’s Deputy Chief Economist and Global Head of Forecasting, Rebecca Rockey, told Connect CRE that the study was initiated to share information about and the challenges of office-centered urban cores with multiple stakeholders, not just those in commercial real estate. “This is a pretty big problem that’s going to take a long time to solve,” she said, explaining that the report was geared to commercial real estate stakeholders and the public sector.
While CRE owner-operators are impacted by building vacancies, city entities are also dependent on real estate tax revenues and foot traffic. While building owners see a reduced rate of return, the lack of revenue impacts issues like safety and education throughout an entire city. Rockey explained that, while real estate is part of the problem and the solution, an understanding of the whole built environment is essential in figuring out what to do about it.
Results with Some Surprises
So, what is going on?
First, there’s a lot of office space, which isn’t news.
Second, the available “play” real estate in WalkUPs—retail, hotels, restaurants, museums, arenas, and theaters—attracts out-of-towners. But that’s about it.
“We found that just under 70% of all foot traffic in walkable urban places and downtown areas was from visitors,” Rockey said. “Only 20% comes from commuters and 10% from residents.” Such statistics explain why many urban cores becomes ghost towns at night.
Furthermore, while play real estate accounts for approximately 1.2% in most cities, “It accounts for 25% of attendance by visitors,” Rockey said.
The real estate allocation in many downtown districts is also skewed:
- 13% to 14% is play real estate
- 15% consists of residential or “lived” real estate
- 70% involves work real estate
Said Rockey: “Office should be more around 40%.”
On the public side, city budgets are taking a hit due to declining tax revenues. The response is to raise taxes, which puts additional strain on property owners. “In some cases, this financial pressure may even lead to tax lien sales and the risk of foreclosure,” the report said.
The Long Haul
Rockey acknowledged that there aren’t single or short-term solutions to bring vibrancy, people and money back to cities. It took decades for WalkUPs to morph into an office-centric districts. It will take time and effort to reimagine the current landscape into something that unlocks value for CRE developers and owners and economic growth for municipalities.
It also requires joint ventures between private and public stakeholders, or, as Rockey called it, “forum building.”
There should be less red tape surrounding permitting and platting on the public side. On the development side, more attention should be paid to the targeted WalkUP needs. For instance, an urban core might have enough office buildings but could really use a mixed-use residential and retail spot. Or a municipality might want to lure more young families to live in its downtown district. The focus should be on affordable housing and community retail services.
“It’s about a give-and-take on both sides,” Rockey said.
The post Urban Core Office Portfolios: Unlocking Value Means More than Talk appeared first on Connect CRE.
