How the Post-Covid Reality Is Reshaping Central Business Districts and Urban Centers

In 2024 the post-Covid reality continues to reshape many aspects of our lives, including real estate in urban centers and central business districts. Specifically, COVID mandates, the long-haul impacts of the virus, and changes in work patterns changed where people spent time. While no one can accurately predict the future of urban centers, it seems the shift away from a 9-to-5 schedule and high office occupancy is here to stay. According to ZipRecruiter, hybrid work is the “new normal,” shifting the dynamics of urban centers and calling for a reimagining of vacant urban office spaces to fit society’s changing needs.

Vacant offices have rippling effects on downtown economies

According to real estate and investment firm CBRE, the U.S. office vacancy rate hit a 30-year high of 18.2 percent in 2023. CommercialEdge’s May 2024 Office Market Report has found that the rate has remained the same. In fact, more office space is currently sitting empty in the United States than at any point since 1979.

Some cities are feeling these effects more than others. Since T. Rowe Price’s recent departure from Baltimore’s Inner Harbor area, the city’s central business district office vacancy has jumped to a whopping 30 percent. Colliers found that Portland, Oregon has already reached a 30 percent vacancy rate and expects that number to climb to 40 percent. 

To put it in perspective, a vacancy rate of 5 percent to 8 percent would be normal for a typical proforma; the 30 percent vacancy in cities like Portland and Baltimore is catastrophic.

Kate Paine, research manager for JLL's Baltimore office, feels that bringing down a 30 percent vacancy rate in the central business district may require more conversions or even demolitions of existing office towers. Other building owners may walk away from outstanding mortgage loans or sell off at well below market prices just to escape a fiscal morass, as some have already done.

This trend is expected to continue. In 2024, several major tech companies, including Google, Amazon, Meta, and Apple, implemented mandates requiring employees to be in the office three days per week. A recent ResumeBuilder.com survey found that while many large employers have put in place a hybrid, return-to-office mandate, 45 percent of companies will not push employees to come into the office more often next year, choosing to leave their current RTO policy as is. In fact, the current policy for federal employees is that they must show up one day a week in the office or work remotely eight out of 10 days in a pay period.

But so many vacant offices have a wide-reaching ripple effect, such as the loss of tax revenue for cities and available parking sitting empty. Imagine a restaurant owner in Philadelphia who now has 40 percent fewer breakfast and lunch patrons.

The impact of remote work on urban parking

When discussing how remote work has shifted urban landscapes, most of the emphasis is on real estate. One other area feeling the effects of changing metropolitan patterns is parking lots and garages.  

While parking pulled in about $144 billion in 2023, many in the industry worry about demand declines. E-commerce has dealt a blow to brick-and-mortar retail, the rise of ride-hailing has eliminated the need to park in many cases, and post-pandemic work trends mean fewer people drive into urban areas five days a week, if at all. The impact of the U.S. federal policy requiring staff to only work in the office one day per week is clear when reviewing aerial photographs of major federal campus parking lots, which mainly sit vacant.  

Many reports indicate that no matter how you measure it, the United States is awash in parking. According to some estimates, there are as many as six parking spaces for every car. Put another way, America devotes more square footage to storing cars than to housing people. Parking takes up as much land as the states of Connecticut and Vermont combined. Devoting this much land to parking makes housing more expensive and hurts the environment. The country has literally “paved paradise and put up a parking lot.”

Paving paradise has created major consequences: parking creates sprawl and makes neighborhoods less walkable; asphalt traps heat and creates runoff; parking minimums can add major costs to building new housing, with a single space in a parking structure costing from $35,000 to $50,000 in most cases. 

One 2017 study found that including garage parking in developments increased the cost of housing units by 17 percent. According to Tony Jordan, President of the Parking Reform Network, the real problem is what does not get built. The housing that was not built because a developer could not put in enough parking means fewer homes for people.

Jonathan Levine, a professor at the University of Michigan, offers the point of view that cities’ parking minimums can make good transit nearly impossible to develop. In fact, a survey by the Pew Charitable Trust found that 62 percent of Americans support the right of property owners and builders to make decisions about the number of off-street parking spaces rather than local governments. Levine also indicates that having too much parking encourages driving. 

Is housing the solution to downtown malaise?

So what should happen to the abundance of empty offices and parking lots throughout the United States? Along with the glut of parking and office space, there is an affordable housing crisis taking place. Utilizing excess parking and office space for housing through adaptive reuse is one way officials are looking to solve multiple problems at once. 

The move away from the need for parking spaces could open more options for affordable housing and make cities more walkable. California’s new regulations no longer require parking for new construction near public transit. That means there’s room for more apartments — and lower rents.

In March, the Sedona City Council approved a program that temporarily converts an empty parking lot into a place where families, workers, or students can live while trying to find a permanent home. In West Los Angeles, an underused parking lot owned by the city’s Department of Transportation was converted into apartments for low-income or homeless seniors. Another example comes from Honolulu’s Kaka’ako neighborhood. There, a tiny, underutilized parking lot is now a 16-story high-rise with 111 studio apartments designed to provide affordable housing in an area that’s quickly gentrifying.

The changes to urban centers don’t stop there. Offices are being converted to apartments at record rates. The 55,339 office-to-apartment makeovers scheduled for this year mark a record high, according to a report by RentCafe. Interestingly, office buildings make up the largest share of buildings being converted, at 38 percent.

The number of units under conversion to apartments in former office spaces has steadily increased over the past four years, coming in at 23,100 units in 2022 and 45,200 in 2023. In Baltimore, the Downtown Partnership is highlighting several market-rate, rental apartment conversions that opened last year. The group also notes that demand for downtown apartments remained strong. Another 6,243 units are planned through 2028, including up to 1,000 units that could be part of MCB Real Estate’s plans to redevelop Baltimore’s iconic Harborplace.

Washington, D.C. has the largest number of units under conversion from offices this year, at 5,820. This is an 88 percent increase from the year prior. New York City is next in line, with 5,215 apartments under conversion from offices, followed by Dallas at 3,163, Chicago at 2,822, and Los Angeles at 2,442. 

The reinvention of cities post-COVID

We can expect cities to reinvent themselves, as they have many times before. We should accept this change in landscape as a challenge that can make cities a better place while understanding that citizens want to live and work downtown. As we move forward, the transformation of central business districts presents an opportunity to address evolving urban needs, support hybrid work models, and create more vibrant, multi-functional spaces. 

Quite frankly, turning excess parking lots back into “paradise” doesn’t sound like a bad way to do it, particularly if it can solve a piece of the housing crisis at the same time. 

Wes Guckert, PTP is president and CEO of The Traffic Group, a leading Service-Disabled Veteran-Owned Small Business (SDVOSB) traffic engineering and transportation planning firm serving clients nationally and internationally. He is also a fellow of ITE, a member of Urban Land Institute’s (ULI) Transit-Oriented Development (TOD) Product Council, and a member of the National Small Business Leadership Council.