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| We Can Create New Cities from the Remnants of the Old |
Commercial vacancy rates in North America are reaching record highs. By the end of last year, nearly 20 percent of office space in major U.S. cities sat empty. A similar story unfolded in Canada, with 19.4 percent of downtown commercial space remaining unoccupied.
Last year, many companies expressed optimism about a return to pre-pandemic office routines. They hoped for a swift return to normalcy, but reality didn't align with their expectations. Predictions of a quick resurgence were wishful thinking rather than grounded in reality.
The rates of vacant commercial properties vary among cities due to different factors. In Toronto, for instance, an influx of new supply contributed to recent vacancies, outpacing demand. Efforts to repurpose unused office spaces into residential units are underway, aiming to address the surplus of commercial properties.
Both Canada and the United States face housing crises, particularly in urban areas. This crisis partly explains why many welcome the shift from commercial to residential use. However, the tension between unused new supply and old properties left vacant or converted underscores the struggle for balance in the commercial real estate market.
Various factors contribute to the rise in vacancy rates, including a weak economy, a downturn in the tech sector, high interest rates, inflation, and the increasing adoption of remote or hybrid work models. Even as the economy may improve in 2024, many workers advocate for maintaining remote and hybrid work arrangements for the long term.
The surge in remote work is popular and brings benefits. It allows for more free time previously spent commuting, encouraging a better work-life balance. However, not all jobs can be done remotely, particularly those in the service and manufacturing sectors, as well as those supporting physical infrastructure.
The increase in vacant commercial space poses challenges for working-class jobs. The decline of office spaces risks further hollowing out downtown areas and supporting industries. Conversely, repurposing empty office buildings into homes could alleviate housing prices. However, this endeavor is complex, and not all buildings are suitable for residential conversion.
Government intervention plays a crucial role in facilitating the conversion process. While some initiatives are in place, bureaucratic hurdles hinder progress. The Biden administration, for instance, offers low-interest loans to finance conversions, while the Canadian government plans to convert its properties in Ottawa into homes.
Transforming downtown real estate requires a corresponding transformation of urban spaces to accommodate residential needs. Safety, walkability, and access to essential amenities like schools and parks are essential considerations. By repurposing commercial spaces, cities can empower workers to choose where and how they work, while addressing the housing crisis.
Ultimately, the opportunity to rebalance commercial and residential space should be embraced. However, careful planning and government intervention are necessary to ensure inclusivity and prevent the marginalization of vulnerable populations. As with any transformation, the details matter, and concerted efforts are needed to address the challenges and maximize the benefits for all stakeholders.