This article entitled People in Toronto won’t stop working from home and it’s impacting the city paints a relatively negative picture about downtown prospects – noting that Toronto office vacancy rates have just hit their highest level since 1995. Looks like the traditional view of the downtown is in for a fundamental rethink?
Wendell Cox (via email):
Fundamental rethink is a good way to put it. The strongest downtowns were largely built to serve a former age. All those in North America of substantial size had large pre-World War ((origins, with the exceptions of Calgary, Edmonton and Charlotte. The Calgary and Ecmonton downtowns rely substantially on transit, while the rest of the market was moving to cars.
The press tries hard to downplay the issue, with all the claims that employees are being ordered back to work. But when you read the articles, you find that they are usually being ordered back to work for three days a week. That means the businesses that rely on downtown employment, like the restaurants, etc. have at best 60% of their former business.
Adaptive re-use, conversion of office towers to residential offers some hope, but many of the newer office buildings have far too large floor sizes, because just about every room in a residential unit needs a window. That means a lot of space you cannot develop in the middle of the buildings, probably making it uneconomic for conversion.
But I think its great for downtown to survive as a walking/biking enclave where the few (relatively) can be happy largely without cars. But this is not the urban form that would have ever evolved in a market environment. If in 1950, Toronto’s population had been the same as Phoenix, it would look like Phoenix today.
BTW, I always like to say that “transit is about downtown.” In our Frontier Centre for Public Policy report “Improving the Competitiveness of Metropolitan Areas we cited the fact that about 96% of the ridership of Metrolink (formerly called Go Transit) had a destination of Union Station. In the US, 60 percent of the transit commutes are to 6 municipalities (cities, not metros), despite their having less than 7% of the jobs (cities are New York, Chicago, Philadelphia, San Francisco, Boston and Washington)
Meanwhile, bad things are already happening in the office market. In Los Angeles (not a really large CBD for a metro of 12 million), the 42 story Union Bank building, one of the first skyscrapers, opened 1967, just sold for 110M, down from the 208 the owner paid in 2010. Brookfield has defaulted on $784 million in office building debt in downtown LA, on two 52 story buildings according to this:https://therealdeal.com/la/2023/02/23/behind-the-scenes-inside-brookfields-dtla-office-defaults/
There will be much more of this, I think.
Wendell Cox is a Senior Fellow at the Frontier Centre for Public Policy