Christina Horsten/picture-alliance/dpa/AP Images
Macklowe Properties’ One Wall Street project in Lower Manhattan, under construction in November 2021. The property has since opened as New York’s largest-ever commercial-to-residential building conversion.
Cities aren’t dead, but downtown single-sector business districts are on life support. The 9-to-5 central business district workweek was one of the first, most obvious, and most enduring casualties of the pandemic. Remote work and hybrid schedules are sweet liberation for such white-collar workers as the commuting suburbanites who endured hellacious journeys into central cities.
These pandemic adaptations sucked the economic vitality out of downtown spaces dominated by government, tech, or finance sector workers. For urbanist Richard Florida, a University of Toronto professor, “central business districts are the last vestige of the industrial age’s packing and stacking of knowledge workers in vertical cubicle farms.”
As city leaders mull over new, more productive purposes for mostly empty multistory buildings, some have landed on converting office buildings to residential uses to alleviate a separate crisis: the critical housing shortages that plague many cities. Turning office buildings into homes may sound straightforward, but urban makeovers are complex. Cities must devise frameworks that consider everything from financing and zoning to community wish lists and economic hurdles before they even pass go in the quest to create 24/7 places to live, learn, and relax.
Washington, San Francisco, and New York, which have the highest number of supercommuters and some of the most expensive residential real estate in the country, continue to see fair-to-middling occupancy rates in office buildings. The January 2023 rates—47 percent in New York; 46 percent in Washington; and 41 percent in San Francisco—are double the same period in 2022, but still far below pre-pandemic levels. San Francisco has been especially hard-hit; its vacancy rate is close to 30 percent (making New York “look good” at 16.1 percent). Having counted on the Bay Area’s techies to keep mass transit (and much else) both populated and funded, it only took one crisis to turn those workers into digital nomads who fled to Austin, Lisbon, Medellin, or some other glamorous elsewhere.
In Washington, Mayor Muriel Bowser has put forward a “Comeback Plan” to bring 15,000 new residents to downtown by converting office buildings into homes. But she has also pleaded with President Biden to order federal workers that the city’s economy depends on back to their offices. In response, Biden’s Office of Management and Budget issued a memo last week that effectively served as a heads-up that some increase in in-person work is on the table.
Philadelphia has its own central business district vacancy issues, but the city leaders got a jump on office-to-residential conversions in the 1990s by converting 19th- and 20th-century office buildings, which housed long-empty small-scale factory and loft spaces over existing modern retail stores, into residences—all in service of beautifying and broadening downtown appeal.
“We faced this challenge more than 20 years ago,” says Paul Levy, the outgoing CEO of Philadelphia’s Center City District, a private-sector business improvement zone. “I like to remind people of Aesop’s fable of the tortoise and the hare: We were tortoises, we were a slow-growth city, everybody was racing past us. Now we look at a lot of exhausted hares lying by the side of the road as we slowly plod forward.”
City leaders will have to confront another divisive issue: who actually gets to live downtown.
Using tax breaks to attract investment, Philadelphia passed a ten-year tax abatement plan in 1997 to incentivize the conversion of any office or industrial space into residences anywhere in the city. Through the 2000s, that plan spurred new condos, hotels, retail, and other improvements downtown that sprang up alongside new, eye-popping amenities like the Kimmel Center for the Performing Arts, a long sought-after, purpose-built home for the Philadelphia Orchestra.
To spur an offices-to-residences conversion program in Washington, the city instituted a 20-year tax abatement in 2022 for commercial property conversions that meet specific conditions including at least 10 housing units, and at least 15 percent of those units must be affordable.
New York is setting its sights on 20,000 new apartments in every neighborhood in the city. Its Office Adaptive Reuse Study suggests offering tax breaks to create mixed-income housing. The city would also offer abatements to building owners who retrofit their structures to house child care centers.
The rush to provide tax incentives has already galvanized significant opposition in Washington, especially given the proposal’s concessions, which include eliminating local construction hiring requirements and reducing the numbers of affordable units. Erica Williams, the head of the D.C. Fiscal Policy Institute, told DCist that she would prefer to see a loan or grant program to reduce the “upfront capital cost.” Philadelphia community advocates have argued that the city’s abatement plan has favored wealthy developers and homeowners and depleted revenues for schools and other city services.
City leaders will have to confront another divisive issue: who actually gets to live downtown. Can mayors justify luxury housing development for the wealthy as more and more people at lower levels of affordability get pushed far out to less-desirable suburbs? How do supercommuting middle-income white-collar workers and the essential workers who kept cities running in the dark days of the pandemic fit into these housing strategies?
Before anyone picks up a jackhammer, cities will also have to determine if existing zoning regulations support office-to-homes conversions. In Boston, where granting multiple variances for projects is the rule rather than the exception, these kinds of conversions are certain to be flashpoints in a city already wrestling with overhauling its antiquated zoning regulations.
Opportunities also may exist to streamline environmental reviews when new uses are as benign as the original ones, according to Amy Cotter, director of climate strategies for the Lincoln Institute of Land Policy. “There’s an opportunity to enable that housing to be developed out of an existing building, after all, as a right without complicated development reviews that bring discretion on a parcel-by-parcel basis,” Cotter said at a recent Volcker Alliance/Penn Institute for Urban Research briefing.
These transformations are long-haul projects that will require political heavy lifting and community engagement to come to fruition. Shorter-term shot-in-the-arm strategies could include other uses like events centers or urban vertical farms. In Chicago, an American-Canadian partnership is hammering out the details on a project in a 110-year-old, 22-story office building across the street from City Hall in the Loop business district.
“This is the new economy,” Susan Wachter, co-director of the Penn Institute for Urban Research, told the Prospect. “Downtown cities that had totally reinvented themselves after deindustrialization will need to reinvent themselves once again.”
If city leaders are impatient about these frameworks, the raft of serious economic hurdles will make them even more apprehensive. According to another Volcker Alliance/Penn IUR panelist, Stijn Van Nieuwerburgh, a professor of real estate at Columbia University’s Graduate School of Business, there are a number of additional economic hurdles, including higher long-term interest rates and anemic leasing activity and renewals by tenants looking to consolidate or downsize space amid recession fears.
New green-building regulations that levy fines on noncompliant buildings will hit hard in New York and Washington (and will make conversions more expensive in older building that are the most attractive ones for these projects). To top off these considerations, the regional banks that are central to the commercial banking system and local development are now looking at a credit crunch and closer government oversight that may make such banks more skittish about lending.
