• A shift to hybrid working, fluctuating visitor numbers, aging real estate and competition from emerging submarkets continue to weigh on the short-term outlook for many Central Business Districts (CBDs)
• Despite short-term challenges, CBDs are in a strong position to capitalize on their strengths moving away from overreliance on offices to become multi-purpose destinations attracting residents, visitors, businesses, and investment
• Partnerships between the public and the private sector will be critical to the success of CBD transformation, maximizing growth opportunities and creating dynamic city cores that work for all

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.

According to our Workforce Preferences Barometer, around 60% of office workers expect flexible working arrangements, with employees now working an average of 2.3 days per week remotely.  CBDs will need to adjust to this new pattern of office use and accept that the hybrid work model is here to stay. 

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.

New, vibrant mixed-use neighborhoods are emerging across the world’s largest cities attracting a growing share of businesses, residents and investment. These districts home to rapidly expanding creative, tech and R&D clusters are diverting investor focus from more established submarkets and spurring new development of office, multifamily, boutique hotel and retail properties.

Emerging districts such as Fulton Market in Chicago, Shoreditch and King’s Cross in London, MediaSpree in Berlin and Roppongi in Tokyo are putting pressure on traditional CBDs to reinvent themselves. Some Central Business Districts are already beginning to embrace change by emulating the more mixed-use, human-scale and amenity-rich environment found in these rapidly growing submarkets.