New hybrid and remote work arrangements, aging real estate across multiple asset classes, competition with emerging and non-traditional submarkets, long commutes and a lack of consistent footfall due to limited residential populations continue to weigh on the short-term outlook for many CBDs.

In the new world of work where employees continue to reassess their work-life balance, priorities have shifted and quality of life is now the number one consideration. Office workers are looking to cut their commute times with long and expensive trips to Central Business Districts now much less appealing.

Although a return to pre-pandemic levels of transit usage and footfall will eventually take place over the longer term given population and employment growth, this will take significantly longer than in previous cycles.

Aging buildings in CBDs continue to raise concerns over obsolescence which presents a challenge for both occupancy and capital value preservation. Although a global issue, greater levels of construction in the post-war period have led to a higher level of structural oversupply in North American markets, pushing U.S. office vacancy to 20.2% compared to 7.6% in Europe and 14.7% in Asia Pacific.

Sustainability requirements present an additional challenge for older properties, as buildings will need to meet ever-more-stringent energy efficiency regulations. On a global level, more than 1 billion square meters of office space will need to be retrofitted by 2050. Retrofitting rates need to triple from barely 1% today to at least 3%-3.5% of stock per year if the global net-zero targets are to be met.

Office re-entry only represents part of the footfall equation for urban cores. After the office sector, hospitality and retail are the most exposed to changes in demand, with revenues in these sectors highly volatile and dependent on both routine and spontaneous trips. Even with pent-up travel demand being realized, the 2023 predictions for leisure travel are estimated to remain below pre-pandemic levels.

CBDs will shift away from being primarily places of work towards becoming mixed-use destinations that capitalize on being at the heart of transport networks with access to a wide range of amenities, as well as educational and cultural institutions. Public and private stakeholders will work together to adapt best practices, adjust planning policies, improve infrastructure and increase investment in sustainability.

An ecosystem of partnerships will form between the private sector, governments and academic institutions and will be essential to maximizing growth opportunities and creating urban cores that work for all. Cities will need to embrace change to revitalize CBDs, improve quality of life and address economic, environmental and demographic issues for a sustainable and inclusive future.