Will reduced demand for offices result in the death of the Central Business District (CBD) in our cities?
This Twitter thread offers an interesting thesis. I have seen this idea come up a few times in the last few years, but urbanist Coby Lefko provides a well-articulated rationale that deserves a thoughtful response.
"With remote work here to stay, cities around America are faced with a difficult challenge. Most office buildings won't be redeveloped into residential (floor plates either can't be converted, or cost is prohibitive), but they will also be under-occupied.— Coby (@Cobylefko) February 21, 2023
What happens then? pic.twitter.com/qp0cnuEd1Z"
These are the main points of his thesis:
- Full remote work is here to stay - office buildings will be in trouble.
- The biggest concentrations of offices – CBDs – are most endangered: “. . . if people have a choice in where they work, CBDs will lose. These are sterile, dreary and almost dystopian neighbourhoods. Few will willingly go to these areas.”
- Office buildings have high operating costs and there is a limit on how much they can lower rents while operating profitably.
- The best solution would be to convert these buildings to other uses, especially housing, but because of their deep floor plates, office buildings are hard to convert to residential uses cost-effectively.
Are we going full remote?
Will full remote work become the norm? I think it is debatable.
On the one hand, there is little doubt that COVID-19 unearthed the huge potential for remote work company-wide. But since then, many companies found full-time remote work not worth it and rolled back to a full-time on-site work regime or to a hybrid model.
So even if will see a drop in demand, the office may be far from dead.
Where do companies want to be?
The most interesting part of the thesis is the geographic implications. If the hybrid model becomes more common, companies will need less office space.
Where will these companies choose to locate? Will they move to suburban office parks?
This may be the case with small companies of a few people. The rent will be cheaper and they will likely locate close to where the owner lives (most of them are probably already there).
But if you are a larger company, what would you do?
For you, the best strategy is to be in the most accessible area in the region since you want to (a) make the office as attractive as possible to the greatest number of potential employees and (b) encourage staff to come to the office and communicate offline since it boosts internal communications.
What is the most accessible location in the region? Usually, it is the CBD. Even in regions with negligible transit systems, the highway systems are centred on the CBD and make it the most accessible part of the region.
And, if you are in an industry where there is also value in meeting colleagues, clients or suppliers from other companies in person, being in the CBD has even more value for your company.
If your company needs less space because staff moved to a hybrid model, a central location is even more attractive than it used to be since you need less space and can easily afford the location premium.
With CBD locations becoming more attainable, suburban office locations can become very unattractive for large firms.
Where do employees want to be?
If, as an employee, you can choose to work from home, is driving to a dreary office park on the other side of the region desirable? Probably not.
But coming once or twice a week to a centrally located office to meet with peers, catch up and discuss important matters face-to-face, and enjoy the downtown atmosphere? I think yes, definitely.
So, is the CBD dead?
This argument is not to meant to detract from other important points this discussion brings up. Many CBDs are atrocious urban environments that need to be improved and we do need to design buildings that can be changed for other uses.
But, we should not discount the economic value of concentration and accessibility, which CBDs do so well.
If a hybrid work model becomes widespread, overall demand for offices may indeed plummet – but suburban office parks are more likely to take the heat, while CBDs might become more attractive.