Once the most popular and busiest location in major cities, downtown central business districts (CBD) are striving to recapture the allure and prominence that made them the center for growth and business. How do CBDs avoid doom loops and recapture the vitality they once had?
In this first of a two-part series on the future of CBD’s, you’ll learn how the term “urban doom loop” describes what happens when companies and their employees leave downtown, effecting retail business foot traffic, ultimately impacting tax revenue, leading to a lack of public services and increased crime.
“Downtowns need to reinvent themselves — again,” says PwC US’s Emerging Trends in Real Estate® 2024 report. “The future of downtown vitality may hinge on whether the economic forces of agglomeration continue to concentrate high-valued firms and industries into cities.”
Before getting to future fixes though, let’s delve into the history of the doom loop and why many CBDs are experiencing the resurgence now.
The Original Doom Loop
In the 1950s, many cities found themselves in a crisis recognized as the original doom loop. According to Business Insider, in the early part of the 20th century, Midwestern cities boomed — attracting workers and families seeking manufacturing jobs and education. By the mid-century, however, many Midwestern cities relied on a single industry or even a single company to buttress its economy. Akron, OH, was home to tire manufacturers, Cleveland, OH, had the steel industry, Detroit, MI, was built on the back of the automobile industry in an effort to keep businesses from leaving town, leaders began to single-mindedly focus on attracting businesses — even if it meant making peoples’ lives harder.
After years of being ignored, workers started to look for new places to live and work, leaving once-bustling cities empty. While most CBDs were able to recover, Detroit is an example of doom loop that has failed to fully recoup.
Post-Pandemic Challenges for CBDs
Fast forward to 2020, where the rise of remote work created a departure to the Sun Belt and suburbs, leaving behind empty subway cars, abandoned offices, and desolate downtowns. Suddenly, cities — such as New York, NY, Boston, MA, and Los Angeles, CA, which boomed throughout the 2010s — are now in an urban doom loop.
New York City, NY, office vacancy has increased by more than 70% since 2019. Most of the downtown service and retail sectors that rely on that regular, daytime consumer population of office workers haven’t recovered.
In San Francisco, CA, 150,000 fewer office workers are commuting downtown than they were just five years ago, each worker taking with them an average of $168 in spending near their office per week; this has led to nearly 33,000 people in the service and retail sectors losing their jobs.
In an interview with MarketWatch, Marc Deluca, CEO of KBS, said that Washington, D.C., and San Francisco, CA, were the two cities he’s most concerned about falling into an urban doom loop.
While he’s seeing positive momentum at KBS properties in such cities as Chicago, Il, and Minneapolis, MN, Deluca said Washington, D.C., has been crippled by the lack of federal workers in offices, in large part because it has negative ripple effects for mass transit, retail and the rest of the city’s financial ecosystem. Still, Deluca sees opportunities in investing in office buildings in cities on the road to recovery from the pandemic, particularly for cash buyers, given that debt financing remains expensive, property values have dropped and a wall of debt is coming due in the next few years.
The Rise of Urban Cores: CBDs See Competition
The economic shock of the pandemic caused many downtowns to lose their lifestyle value, remote work zapped their commuting value, and physical distancing stripped some urban cores of their social value, according to a CoreLogic economist. The result was people moving out of the city and into the suburbs for more space.
According to ULI and PwC US’s 2024 Emerging Trends report, “Downtowns face more live/work/play alternative communities in surrounding suburbs, smaller cities and even in their own city neighborhoods that will compete for their economic vitality,”
The Atlantic called the pandemic dispersal from urban cores “Revenge of the Suburbs,” where the highly amenitized mixed-use property development and town center design trends were already well established. On the perimeter of cities, people found that they could have their proverbial cake with space and eat it, too.
“Further-flung” counties, those in emerging suburbs — as well as in areas outside a city beyond its suburbs, inhabited chiefly by the affluent — experienced the fastest population growth since spring 2020, according to Cushman & Wakefield.
KBS’ Park Place Village is an excellent example of a suburban neighborhood that’s thriving post-pandemic. Located about 30-minutes from downtown Kansas City, KC, Park Place Village’s integration of office, retail and residential space, offers a highly walkable live-work-play environment that is very attractive to today’s tenants. The office and retail have seen a flurry of leasing activity since the pandemic began and is now nearly 100% leased.
Next Steps
How important are U.S. downtowns to their cities and the whole economy? The Brookings study found that, with few exceptions, even if half of jobs did not return to their CBDs and all of the jobs returned to every other surrounding professional submarket, downtowns would still be the densest job centers in their relative regions. And urban cores maintain significant building sustainability advantages, including household emissions that, on average, are a quarter of their suburban counterparts.
According to DeLuca, “Time after time, office has always come back.”
How can downtown offices rebound and prosper? ULI broached four key variables impacting recovery: the makeup of downtown employment; the length of workers’ commutes; perceptions of safety; and the leadership of business, civic and political actors.
To reinvigorate downtowns, leaders should champion innovation, sustainable infrastructure and public, private and civic partnerships. From repurposing offices, embracing mixed-use spaces, enhancing urban attractiveness through placemaking and striving for the interconnectedness of “20-minute neighborhoods.”
STAY TUNED for the second part of this series in the coming weeks. Learn more at KBS.com/Insights.