The Covid-19 pandemic led to a foundational shift in how and where people work. As the real estate industry has sought to better understand how the pandemic has affected cities as a whole, the concept of the “urban doom loop” has frequently been mentioned as one of the most negative effects of the global health crisis, particularly in the U.S.
In a deeper look at the topic by Cushman & Wakefield and Places Platform, LLC in the report “Reimagining Cities: Disrupting the Urban Doom Loop,” researchers brought together crucial data and undertook analysis across more than 200 walkable urban areas in 15 key U.S. cities for a first-of-its-kind study. Here, we delve the report’s most important takeaways and recommendations with Rebecca Rockey, deputy chief economist and global head of forecasting at Cushman & Wakefield, one of the authors of the report.
The report identifies and focuses on more than 200 “WalkUPs,” or regionally significant Walkable Urban Places, in 15 key cities across the country. Why are WalkUPs so important?
These WalkUP areas are very small in nature. [Each of them constitutes] roughly . . . 3 percent of [its respective city’s] land mass, but they [encompass] a quarter of all of the real estate stock—26 percent of the real estate value. They account for 37 percent of the property tax revenues for their city governments, and they account for 57 percent of [gross domestic product]. When you think about how a doom loop could happen, if these parts of a city are challenged disproportionately in some manner, at some point, that [inequity starts] to affect public tax revenues and the ability of governments to provide services. These parts of [a city] consume fewer tax dollars per square foot, and generate disproportionately high revenue per square foot, effectively subsidizing the rest of the city. So, even if you don’t go to them or you don’t work in [such a part], the reality is that, with time, the challenges they face will affect everyone who depends on the city for any kind of service.
How has the shift in office use since the pandemic affected the live-work-play balance of WalkUPs?
For the most part, it’s pretty imbalanced, especially when you get to downtowns, where 70 percent of real estate is some form of office [on average]. But even within the other kinds of WalkUPs, you can see an over-representation of work, although it’s generally less significant than it is for downtowns. Unfortunately, from pre-pandemic to today, the share of the market that’s in some kind of work—whether it’s private office, owner-occupied, government-owned—has pretty much not changed, and it speaks to the difficulty of converting product. Before the pandemic, conversions accounted for about 0.8 percent of the changing turnover in the stock, but that’s . . . ticked up to 1.2 percent. That’s why we think there’s some urgency that needs to be placed on this [issue] to really make sure city governments [and] the economy can thrive. I think it will take some conversion incentives, both at the city and the federal level.
What can cities do to rebalance WalkUPs, particularly in terms of policies around the entitlement process and incentives?
We didn’t go into that section [while] wanting to be overly prescriptive. Different cities are going to have, for example, very different tax fingerprints. The nature of their economy, their employment structure—[each] varies quite significantly, and the diffusion of office vacancy throughout the office stock that we discuss is very different from market to market. Generally speaking, if you have permitting that is more form-based than around specifics with density and [requires] very specific use cases in a certain area, that opens up the opportunity to convert to whatever the highest and best value uses. Expediting any kind of zoning would yield benefits. In some markets, it can take two to three years just to really break ground. The ability of cities to really get ahead of this [problem] is going to be further diminished the longer that they wait, and they’re going to have tough trade-offs that they face as a result. We are already seeing some cities start to move in this direction, which is really heartening.
This report is a thorough deep dive, but should cities do more research of their own in looking to mitigate the doom loop or revitalize urban areas?
It’s very difficult for [cities] to understand what they have, to understand the value, understand the connections. We found [that], whether it is a city government or place management groups, introducing data to help navigate and just put some guardrails around where you take things, instead of guessing, is certainly a key finding. [Doing so] introduced at least a foundation and a starting point that we hope to build on for informing how cities, place managers, and investors themselves—who own this real estate—can think about whatever it is that they’re doing. We think that that’s probably the most important thing, that you can actually have this data-driven, place-based and fully integrated approach to thinking about real estate. We’ve tended to work in silos in real estate and it’s time to think differently and holistically.
