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Cities have undergone rapid changes in the wake of the pandemic, the rise in remote work and unprecedented vacancies. Through the lens of commercial real estate, CBRE’s report, Shaping Tomorrow’s Cities determined the six keys that will help cities thrive and their opportunities for driving change. In conversation with CBRE’s contributors Julie Whelan, Global Head of Occupier Thought Leadership and John Stephens, Senior Director, Americas Consulting, they discussed their insights from the piece. Read below to learn more:
What was the process for researching the Shaping Tomorrow’s Cities study?
Julie: The reason we started this research was because we knew that the built environment is a major factor in cities, and we wanted to take a real estate lens to this market by unearthing the myths and truths behind what was really happening in the office market. I’d say from a research perspective, I think what makes this different is being able to use our proprietary data and overlay it in a unique way of looking at cities that help tell that story versus leaning into the narrative or headlines that the media was projecting a year ago.
John: We studied the factors that contributed to today’s cities. For instance, we knew that COVID was a major disruptor, but we also knew there were other macro elements like the Urban Renaissance that we cover in our earlier chapters, which was a period of population growth and job creation specifically in the densest part of our cities in the decade or so leading up to the pandemic. Demographic factors were another contributor we found interesting, because that Urban Renaissance was driven largely by millennials joining the workforce and moving to cities after the financial crisis. That same group was perhaps aging into their next life stage at the same time the pandemic hit. We were excited to explore all this through the real estate lens.
The piece identified six keys that help cities thrive: economic dynamism, demographic potential, lifestyle vibrancy, distinctive identity, responsive governance and resilient infrastructure. Which of these keys requires the most attention in our current city landscape?
Julie: The factors in this report are critical elements for cities to thrive in the future and inspire any transformation in a district. The reason we broke down cities into four different archetypes is because not all cities are built alike. When you look at cities with distinctive identities, for example, there is an inherent draw to them because of their unique aspects. Super Cities and Mixed Majors have distinctive identities defined by history and culture which differentiates them and contributes to enduring character. But, when you look at the “sprawling darling” cities that we outlined in the report, they struggle more with distinctive identities because they are grown in a way that is decentralized and very suburban. They would benefit from strengthening their urban vibrancy rooted around what makes their markets unique from landscape to sports to arts and culture.
John: I agree, and another key that our market leaders think is significant is responsive governance. Responsive governance means the city has efficient zoning, economic incentives and safety standards to ensure that the city is well-managed and thriving. We’re seeing some rapid experimentation on issues like subsidies, zoning changes and public competitions for adaptive reuse projects and historic preservation. Cities are recognizing the opportunities and are trying to meet the moment.
The report found that targeted conversion activity could be a catalyst for broader change. Can you describe how conversions are rolling out currently?
Julie: Conversions are rolling out slowly. Currently, we have about one and a half percent of inventory under conversion and this varies in different markets. Dallas and San Francisco, for example, both have high vacancy rates, but Dallas has more office conversions planned or underway than San Francisco because it’s had vacancies for longer. San Francisco is a very expensive market, which makes conversions more challenging for developers. In general, there is a huge dependency on the value of the building today.
John: The discourse around conversions tends to be pessimistic because it is a difficult endeavor and most importantly expensive. But this doesn’t mean that it won’t be a significant trend. Each asset that finds a way to be converted can have a material impact on its immediate surroundings, and when conversions increase, we can expect it to add a positive uplift.
Julie: I agree, and I think these conversions are about making cities more livable. 50 years ago, our cities were built with central business districts, because they were rooted around business. Americans would move out into the suburbs and commute into cities. Today, this trend is reversed where we need more people living in cities and raising families and visiting them for leisure. This idea is the crux of the report where the city needs to be fit for livability and merging of life, not just work.
The aging population and children of millennials is mentioned in the report as contributing to who the next generation of cities is evolving to support. Can you expand on this and any other factors for cities’ progress?
John: One of the components of the report is the idea that cities can attract and retain individuals and households from every life stage. Whether they are younger people looking for the best employment opportunities and social amenities, parents raising families and seeking better schools, or retirees looking for walkable areas and recreation, we believe that urban environments have a lot to offer.
Julie: There is also the advancement of technology and sustainable practices we must contend with in making sure cities are moving in the right direction. We still have a journey ahead in progressing with change.
While researching this report, was there anything that you found surprising?
John: We found a pocket of Charlotte, NC to be the fastest growing for urban development, which was surprising as it is predominantly a suburban market. However, this was an important lesson that sometimes it isn’t always binary, when comparing suburbs with cities. The healthiest markets have both. I suspect in the future that suburbs and cities will learn a lot from each other.
Julie: When I looked at the results of the district types stacked together, I would have thought we’d have had much more mixed-use vibrancy, especially in our major cities than we actually do. The bottom line is that we are nowhere close to reaching a saturation point – there's always room for more.
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