America's Downtowns Are Hurting in an Era of Remote and Hybrid Work — Question Is, Will They Survive? Is the era of downtowns over?
By Gleb Tsipursky Edited by Maria Bailey
Key Takeaways
- What is the future of downtowns in the era of remote and hybrid work?
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Downtown areas have long been the beating heart of cities, bustling with activity and serving as economic hubs. However, the recent data from the 2023 INRIX "Return to Office" report reveals a concerning trend: 18 out of 20 downtowns in the U.S. are still experiencing fewer vehicular trips compared to pre-Covid levels. This decline has far-reaching consequences, impacting various facets of urban life.
The decline is not uniform across cities. New York, the most job-dense downtown in the U.S., has shown resilience, with vehicular trips just 5% below pre-Covid levels. In contrast, San Francisco, the second-most employment-dense downtown, remains a staggering 41% below 2019 levels of traffic.
A McKinsey report adds another layer: Office attendance has stabilized at 30% below pre-pandemic norms, thereby compounding the reduction in downtown traffic. Additionally, McKinsey's data reveals that from mid-2020 to mid-2022, New York City's urban core lost 5% of its population, while San Francisco's lost 6%. This urban exodus has led to decreased foot traffic near stores in these metropolitan areas, remaining 10% to 20% below pre-pandemic levels. These two cities illustrate the complex dynamics at play, with local factors contributing to the varying rates of recovery.
Overall, cities like Washington, D.C., Chicago, Seattle and San Francisco have shown the least growth. The stalled growth suggests that other local factors, such as education level, racial demographics, broadband access and local culture, maybe influencing telecommuting rates.
The impact of industry and location
The convenience and flexibility offered by telecommuting have made it an attractive option for both employers and employees in certain industries. For example, the INRIX report finds that nearly 40% of employees in information, finance, and professional services (IFPS) are working from home nationwide.
Yet telecommuting rates also vary widely across locations. In San Francisco, 64% of IFPS workers reported telecommuting, while in Houston, just 28% did. That suggests a clear impact of local culture, not simply industry dynamics.
The significant decline in office attendance, particularly in superstar cities, forces a reevaluation of business real estate strategies. McKinsey's report suggests that by 2030, the demand for office space could be 13% lower than it was in 2019 in a moderate scenario and up to 38% lower in the most severely impacted city. In this environment of reduced demand and potential oversupply, business leaders have the opportunity to negotiate more favorable lease terms or even consider relocating to prime but previously unaffordable locations.
Downtown trips: Down and out?
The reduction in downtown trips has had a direct and profound impact on local businesses, particularly those reliant on foot traffic. Restaurants, retail stores and hospitality services have suffered, leading to closures and financial strain. The real estate market has also felt the pinch, with headlines like "Owners are Walking Away from Downtown S.F. Buildings" highlighting the financial crisis faced by property owners.
A vibrant downtown contributes significantly to local tax revenue. According to the International Downtown Association, downtowns deliver an average of 17% of citywide property tax revenue, 43% of hotel tax revenue, and 12% of sales tax revenue. The decline in downtown activity has led to a loss in these revenues, potentially leading to public budget cuts and negative implications for key government programs.
Beyond the economic ramifications, the decline of downtown has a psychological impact on city residents. The once lively and energetic centers have become quieter, losing their vibrancy and appeal. This shift affects the perception of the city and can have long-term effects on community engagement and urban identity.
The commuting conundrum
The decline of downtown areas due to the rise of telecommuting presents a complex challenge that cannot be solved by simply forcing people back into the office. As I often emphasize to my clients in city governments, this approach is not only impractical but also fraught with negative consequences.
Forcing employees to commute to the office can have a direct impact on their wellbeing. Long commutes are often associated with increased stress, fatigue, and dissatisfaction. The time spent in traffic or on crowded public transportation can lead to a decrease in overall life satisfaction and even contribute to mental health issues. The personal toll this takes on individuals cannot be underestimated.
The environmental impact of increased commuting is another critical factor to consider. More cars on the road mean more emissions, contributing to air pollution and climate change. Encouraging telecommuting can be seen as an environmentally responsible choice, aligning with broader goals of sustainability and reducing carbon footprints.
The economic argument against forcing people back to the office is equally compelling. Time spent commuting is time lost from productive work. The hours that employees spend stuck in traffic or waiting for public transportation could be better utilized, contributing to the economy. Furthermore, the cost of commuting, including fuel, vehicle maintenance, and public transportation fees, can be a significant burden on workers, reducing their disposable income and potentially impacting consumer spending.
While the struggles of downtown areas are real and concerning, the solution is not as simple as mandating office attendance. A more nuanced and balanced approach is needed, one that takes into account the multifaceted impacts of commuting.
City governments, in collaboration with businesses, can explore innovative solutions that encourage a healthy balance between remote and in-office work. This might include investing in public transportation to make commuting more efficient and less stressful, creating incentives for businesses to offer flexible work arrangements, and supporting the development of local amenities that make downtown areas more attractive places to work and live.
Conclusion: A future in flux
The remote revolution has reshaped the landscape of downtown areas, with telecommuting playing a pivotal role in the decline of vehicular trips. While some cities like New York have shown resilience, others continue to struggle with recovery. The future of downtowns is in flux, with telecommuting continuing to be a massive force in keeping both vehicular and transit trips down.
The challenge now lies in finding a balance that allows for the vibrancy and economic vitality of downtowns to thrive while embracing the new normal of remote work. The road to recovery may be long, but with innovation, collaboration, and a keen understanding of the multifaceted influences on downtown travel patterns, cities can forge a path toward a prosperous future.
