March/April 2023

Page 24



Economy Central presented by


Downtowns are Here to Stay How they will look could be a different story. By Lynn MacDonald and Logan Anderson


ver the last few years, we have seen significant changes in where people are working. Remote and hybrid work arrangements have increased compared to the pre-pandemic norm, contributing to a reduced office presence. While the rates of in-person work differ by city, the Minneapolis Downtown Council reports approximately 55% of the Minneapolis downtown workforce is in the office at least once a week. A recent national survey found, “across all workers, cities, and industries, 30% of paid days were remote as of September 2022.” With remote and hybrid work arrangements continuing,

some businesses have been consolidating office space to adapt. In Minneapolis, there is a stark difference in needed office space pre-pandemic to now. At the end of 2019, downtown Minneapolis had 121,800 square feet of available sublease space. By the second quarter of 2022, 1.3 million square feet of sublease space was available in the same area. This “stranded” office space has led some journalists to raise concerns over the ability to maintain economically viable and vibrant downtown areas. This concern certainly has merit. Reduced office presence, declining commercial real estate

values and decreased foot traffic have created ripple effects for local businesses and local governments. In Minneapolis, the downtown area accounts for 4 % of the city’s land, but nearly 40% of the city’s property tax collections. Over the last three years, the 14 highest-valued office buildings in Minneapolis dropped in value by 7%, which translates to $165 million. Stijn Van Nieuwerburgh, professor of real estate and finance at Columbia University’s Graduate School of Business, points out that not all office space is equivalent. For example, in New York City, newer office buildings with more amenities have been faring better than older stock with fewer amenities. These “higher quality” buildings were faring better in terms of rents, i.e., these buildings weren’t losing value at the same rates as other, older, or lower quality office space with fewer amenities. He suggests this may indicate the importance of amenities in attracting workers back to the office. Urban economist Richard Florida reminds us that downtowns aren’t solely about offices. He emphasizes that cities offer social value. People still look to downtown areas for social interactions and this demand has been growing as restaurants, coffee shops and coworking spaces are becoming valuable for social connection and collaboration. Though people

haven’t been coming back to work in droves, they have been looking for housing. Dense downtowns such as Austin, Texas and New York City have seen significant increases in rental demand, indicating that people are still willing to pay a premium to live in an urban area. Cities and their downtowns will likely continue to undergo a shift in what space is used for. Some cities are already looking into ways to repurpose unused office space. Converting commercial space into residential or mixed-use development may help bring back downtown areas that are languishing. An analysis in Los Angeles County identified 2,300 potentially underutilized commercial properties that could possibly be converted to more than 72,000 residential housing units. While it is still unclear what the future holds for downtown office space and development, early evidence suggests that cities are thinking of creative ways to use their empty space. In a 2022 Bloomberg article, economist Florida wrote, “the rise of remote work today won’t kill off our downtowns, but they will be forced to change once again. And with smart strategies and perseverance on the part of city leaders, real estate developers and the civic community, they can become even better than they were.”

Contributors ________ Logan Anderson is a St. Cloud State University economics and political science student. Lynn MacDonald, Ph.D., is an associate professor of economics at SCSU.


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