The Evolving Role of Offices in Central Business Districts: Post-Pandemic Trends and Insights
Adapting to Change: Transforming Central Business Districts in the Post-Pandemic Era
Dear Readers,
A warm welcome to all the new subscribers that have joined in the past week. I hope you will enjoy this issue of the Newsletter.
Feel free to send me a DM with any feedback or if there is a specific topic you would like me to cover in future issues.
Best,
Carlo
Today’s newsletter explores the changing location of office buildings in cities and its impact on Central Business Districts (CBDs).
Before the pandemic, CBDs were the economic hubs, home to major company headquarters and bustling with workers. However, the rise of hybrid work and flexible office spaces is challenging the traditional role of CBDs.
The pandemic has sped up this change, with hybrid work reducing the number of daily workers in CBDs.
Today, we will cover these key issues:
1. Why CBDs started changing before the pandemic.
The Rise of Mixed-Use Developments in CBDs.
Shrinking Office Footprints: A New Trend.
Decentralisation: Workplaces Moving Closer to Homes.
Challenges and Opportunities for CBDs.
Let’s dive in.
1. Why CBDs Started Changing Before the Pandemic
Even before COVID-19, CBDs were evolving. The main issue was their sterile and empty nature after office hours.
This separation of city functions is outdated. It's more apparent in modern US cities that grew in the 20th century and less so in European cities with more mixed-use development.
“The key is about creating a “24x7 experience” to amaze and surprise people from the time they leave the metro station to entering the offices. It is about transforming the business district into a destination and offering a differentiating experience.” - EY
Today, we carry our work on our phones. Business and leisure blend, letting people work from anywhere.
I’ve been working from third places since 2019, carrying my office in a backpack. Without a fixed office, I use various consultant offices around the city.
The City of London shows this evolution. Once just a financial district, it was quiet after 6 pm and on weekends. Today, it’s a vibrant area with shops and restaurants for workers and tourists. This change was driven by the City of London Corporation's Planning Department.
2. The Rise of Mixed-Use Developments in CBDs
A key adaptation for CBDs is becoming more mixed-use. This involves reducing the dominance of office towers and increasing retail, residential, hospitality, and cultural amenities. The result is a more diverse environment appealing to a broader range of users beyond office workers.
Mixed-use development is important for several reasons.
It helps to create a more vibrant and engaging streetscape.
It attracts diverse groups of people.
It creates a more dynamic and vibrant environment.
It can help to reduce car dependency and promote more sustainable modes of transportation.
Housing, jobs, and amenities are in close proximity.
Walking, biking, or using public transport becomes easier.
This reduces traffic congestion and improves air quality.
It creates a more resilient and adaptable urban environment.
Diversification of uses makes CBDs less vulnerable to economic shocks or market changes.
If one sector declines, others can help maintain vitality in the area.
Examples include the Paris Mayor's 15-minute city model; the redevelopment of King's Cross in London and Hudson Yards in New York City.
3. Shrinking Office Footprints: A New Trend
Companies have been reducing their office footprints for years. This trend sped up after Covid with hybrid working and third-place office locations, freeing up space for other uses.
This doesn't mean the end of the office. Instead, it's a "flight to quality" as companies focus on fewer, high-end spaces to attract workers for collaboration and culture-building.
Higher-quality office space is more efficient. Companies can fit the same number of people in smaller spaces because:
Buildings are designed for higher workplace densities.
Companies adopting flexible working arrangements, reducing the number of desks needed.
An example is Freshfields move from Fleet St. to 100 Bishopsgate in London:
The lease was signed in 2016, four years before the pandemic.
They consolidated approximately 370,000 sq ft across two offices into one location.
At 100 Bishopsgate, they now occupy 300,000 sq ft.
The new office saves 30% in energy costs.
The move and fit-out of Freshfields Bruckhaus Deringer’s (Freshfields) new London offices represents and facilitates a ‘turbocharged evolution’ of the law firm and its working practices, launching this forward-thinking firm into its next generation. - Sheppard Robson
4. Decentralisation: Workplaces Moving Closer to Homes
Another trend is the growth of local coworking spaces and satellite offices in suburban and residential areas. This lets companies provide workspaces closer to employees’ homes, reducing commute times.
While this may reduce the number of workers in CBDs, it creates opportunities for local amenities and services to thrive. CBDs will need to innovate to stay competitive and attractive.
The growth of local coworking spaces meets workers' changing needs, prioritising work-life balance and flexibility. Providing workspaces closer to home helps balance work and personal commitments, especially for parents and caregivers.
Local workplaces are also in demand due to the growth of SMEs and one-person businesses. In the EU alone, SMEs are growing at about 3-4%, accounting for about 90% of businesses worldwide.
5. Challenges and Opportunities for CBDs
The changes in CBDs present both challenges and opportunities for real estate investors and developers.
Opportunities:
Repositioning and repurposing of obsolete buildings.
Brown to Green building conversions.
Value-Add investment opportunities arising from converting office buildings to more attractive uses.
Creating more vibrant, liveable CBDs with resultant increase in attraction.
Increased collaborative efforts between private and public sectors.
Challenges:
Higher vacancy rates due to rise in empty office buildings.
Dealing with a rise in building obsolescence.
Reduction in Office property values.
The future will bring change. City planners must review urban plans to develop solutions that help cities and CBDs reinvent themselves.
Conclusion
In conclusion, while office buildings still have a place in CBDs, these areas must evolve to stay competitive.
The solution likely lies in a combination of factors highlighted today.
Key takeaways:
The evolution of CBDs had already started before the pandemic.
Major occupier’s office spaces are taking up smaller footprints.
CBDs are moving away from just offices and increasing Mixed-Use.
Workplaces outside of the CBDs are growing.
Increased demand for High Quality and ESG-driven buildings.
That's all for today.
See you next week.
Support Unlocking Real Estate Value!
Consider upgrading to a paid subscription to show your appreciation for my writing and support the Newsletter. I’m working on a series of exclusive resources that paid subscribers will get access to.
Other ways I can help you.
Do you need help focusing the development strategy for a project?
I can help you brainstorm an idea or with real estate market advice.