Reimagining Cities-Disrupting the Urban Doom Loop

D I S R U P T I N G T H E U R B A N D OOM LOO P

CONTENTS Executive Summary

4

Introduction, Methodology and Lexicon

9

The Role of Cities in Metropolitan Development

9 11

Research Approach

Virtuous Cycles: How Cities Avoid Doom Loops and Thrive

16

The WalkUP Orchestra

16 19 22

Doom Loops and Virtuous Spirals

Case Studies

Real Estate Performance: Economic Analysis of Rents, Values and Product Diversity Mix

32

An Overview

33 37 42 46 50

Rents and Valuation

GDP and Fiscal Powerhouses

Places Platform, LLC/Cushman & Wakefield Product Diversity Index

WalkUP Fiscal Revenue Contribution to City Budgets

2 Cushman & Wakefield

The Importance of Place: Place Management, Safety, the Return of Foot Traffic, and Homelessness

54

Enhancing the Total Experience

54 62 65 72 73

Crime

Destination Retail, Entertainment Districts and “Anchor Institutions”

Homelessness

More Than the Sum of its Parts

Reimagining the City: The Optimal Real Estate Mix and How to Get There

74

Goldilocks Principle

74 79 86

Conclusions

Proposed Recommendations

Methodology

92

Reimagining Cities: Disrupting the Urban Doom Loop 3

EXECUTIVE SUMMARY

The global pandemic caused significant economic disruption in the U.S., notably impacting the “back to the city” movement that emerged in the late 1990s. The shutdown that ensued from the pandemic, and the subsequent fear of infection and rise of work-from home had profound impacts on regionally significant walkable urban places (also known as WalkUPs). 1 From 2020-2021, most WalkUPs entered a “doom loop” of decreasing foot traffic, real estate occupancy, valuations and public tax revenues, which led to decreased public safety and street level vitality, as well as a spike in crime and homelessness. There were concerns that this doom loop may bring the early 21st century “back to the city” movement to its knees. In response to this fear, this study aims to explore: 1) are WalkUPs facing a structural doom loop that could take decades to reverse, or are they experiencing a more transitory episodic doom loop, and 2) how should cities reimagine their real estate footprint to adapt to a post-pandemic world—particularly to reverse or even escape a doom loop?

1 Our study examines ‘regionally significant’ walkable urban places (WalkUPs). We define this further in the introduction.

4 Cushman & Wakefield

KEY FINDINGS FROMOUR STUDY:

WalkUPs are significant economic drivers. We found that the 208 WalkUPs in the 15-city sample 2 represent, on average: 3% 26% 37% 57% of the land mass of these cities of the city budget tax revenues

of the real estate valuation

of the city GDP (41 times the GDP/acre of the rest of the land mass of the 15 cities)

One could argue that the economy of the WalkUPs is why the city exists.

The pandemic-induced doom loop is episodic and has shown signs of a reversal. In the 15 cities studied, population losses were for two years only (2020-2021), and have reversed, increasing in 2022 and 2023. So, while visitor and (non-resident) employee return to WalkUPs is still below 2019 levels, there has been a more than complete recovery in residents across cities and WalkUPs.

LIVE multifamily rental, student housing and for-sale

PLAY retail, hotel, sports and entertainment, etc.

Portfolio theory applies to cities’ real estate inventories. Real estate valuations in these WalkUPs were lower over the four-year time period of the research (between 2019 2023), largely due to an over-inventory of office space (62% of the reduced WalkUP valuations is due to declining office valuations), especially in the Downtown WalkUPs. For-sale housing boomed in valuation during this time, but WalkUPs tend to have less of this product type in their inventory.

14.3%

33.5%

CURRENT PORTFOLIO OF WALKUPS

52.2%

WORK o ce, GSA, owner-occupied, university

2 15 cities include six Gateway cities (Boston, Chicago, Los Angeles, Manhattan, San Francisco, Washington, DC), five large secondary cities (Atlanta, Dallas, Miami, Philadelphia, Seattle), and four moderate secondary cities (Austin, Denver, Phoenix, Raleigh).

Reimagining Cities: Disrupting the Urban Doom Loop 5

KEY FINDINGS FROMOUR STUDY:

LIVE DOWNTOWN WALKUPS WORK

Downtown WalkUPs are extremely Work centric. Downtown WalkUPs contain 32% of real estate value in WalkUPs. They are much more oriented toward Work than other WalkUPs or the rest of the city and metro area. Other WalkUPs are more balanced. The three non-Downtown WalkUPs (Downtown Adjacent, Urban Commercial and Urban University) are much more balanced and in line with our estimates of an optimal product program (as shown on the right). The key finding of this research is that an optimal real estate product portfolio mix exists, and cities, particularly Downtowns, must rebalance their portfolios accordingly. This optimization would generate the highest real estate valuation price per square foot (PPSF) and GDP for WalkUPs. Office remains the primary component of WalkUPs’ real estate mix. While rebalancing is necessary, office remains the primary product type for WalkUPs, with Work accounting for the highest share (42%) of the three real estate types. Downtowns and other WalkUPs are logical locations for businesses, and these places disproportionately drive job growth and GDP creation.

PLAY

15.9%

14.5%

69.7%

OTHER WALKUPS

WORK

PLAY

LIVE

41.8%

44.0%

14.3%

OPTIMAL PRODUCT PORTFOLIO

WORK

PLAY

LIVE

31.0%

26.0%

42.0%

Businesses and jobs continue to cluster in the urban core, with 40% of 2024 Class A office leasing occurring in CBDs (in line with the 2017 2019 average of 42%).

3 Percentages may not total to 100% due to rounding.

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Downtowns are the outlier, but rebalancing should occur in all four WalkUP types. To achieve an optimal portfolio balance, the following strategies for adjusting property types should be considered:

Build more Play portfolio in all four WalkUP types.

Build more Live portfolio, especially in Downtown WalkUPs.

Increase the ratio of for-sale versus for-rent Live in all four WalkUP types.

Reduce Work portfolio’s share

of inventory, especially in Downtowns.

TOACHIEVE THIS REBALANCING, CITIES MUST “MAKE THE RIGHT THING EASY TODO.” Whether it be expediting the entitlement process, moving toward form-based codes and/or offering incentives to hasten adaptive reuse, there are multiple options for how cities can facilitate this rebalancing. To increase the odds that the current doom loop is episodic and not structural, time is of the essence. It’s time to get moving.

Reimagining Cities: Disrupting the Urban Doom Loop 7

WalkUP is the shorthand for a regionally significant walkable urban place. A regionally significant place is a concentration of base or export jobs and organizations that make the major contribution to the GDP of the place, city, and metropolitan area. Walkable Urban development form uses multiple transportation systems to get to the place (cars, trucks, transit, biking and walking) but once you are there nearly everything is within walking distance.

Quick Definition

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INTRODUCTION, METHODOLOGY AND LEXICON

About This Study Most studies on the “urban doom loop” have focused on the problem rather than the solution. History has repeatedly shown that cities can overcome doom loops with a strong vision, rapid reinvestment and quality place management. In this study, we highlight some notable U.S. city success stories, and we are the first to analyze the real estate product portfolio in regionally significant geographies referred to as WalkUPs 4 —as it exists today versus the optimal product portfolio needed to optimize both the real estate valuation and GDP of WalkUPs. We also provide recommendations for how the current product program can transform into the optimal product program. Finally, we demonstrate how the optimal product program will drive increased tax revenues that can subsidize the rest of the city and social programs in the city budget.

the news each night, added fuel to the fear that cities were dangerous places to live in or visit. Compounding this public health crisis was civil unrest in 2020, followed by a spike in crime in many U.S. cities. Are U.S. cities dying? Has technology allowed us to conquer distance by working from anywhere? Can doom loops be reversed? Our research answers these questions. We have selected 15 U.S. cities for a deep dive into the recent past and probable future of several types of American cities. 5 The concept of urban doom loops is often exaggerated, but city declines did occur long before the pandemic. Cities in the U.S. began a steep population decline starting around 1950. Of the 15 cities we examined, 39% of the metropolitan areas’ population lived in these cities in 1950. By the end of the 20th century, the ratio was 18%. In other words, cities would have had to double their population growth from 1950-1999 just to maintain the population share they had in 1950. The population decline of cities reflected the late 20th century flight to the suburbs and disinvestment in American cities. It also showed the rise of “Drivable Sub-urban” 6

THE ROLE OF CITIES IN METROPOLITAN DEVELOPMENT

The media has written extensively about the “end of cities” and doom loops caused by the negative impacts of the global pandemic on American cities. The stories and images of death and sickness in 2020, highlighted on

4 WalkUPs are one of the four types of places in the Places Lens©, which are described in detail later, which divides 100% of the metropolitan land mass into a four-cell matrix. WalkUP is the shorthand for a regionally significant, Walkable Urban place. 5 The cities included in the report’s analysis: Atlanta, Austin, Boston, Chicago, Dallas, Denver, Los Angeles, Miami, New York (Manhattan only), Philadelphia, Phoenix, Raleigh, San Francisco, Seattle and Washington, DC. These cities intentionally represent a diversity of geography, city size, industry mix and demographic makeup so as to identify trends that might look different in large, gateway cities versus other major markets in different parts of the U.S 6 “Drivable Sub-urban” is a comparable and opposite term to Walkable Urban. The transportation system for Drivable Sub-urban places is only cars and trucks. There is no other way to get to this kind of place and once there, most workers, residents or visitors use cars and trucks to get around the place. Sometimes there are not even sidewalks to walk on and, if there are sidewalks, they are rarely used since the distances are so long and unattractive for walking. “Sub-urban” is the form of the place...literally it is beneath urban density, meaning that the floor area ratio is between 0.05 to 0.8 to allow for most of the land to be dedicated to surface parking lots or landscaping. For most real estate product types (office, retail, residential, etc.) there is more absolute amount of parking square footage than building square footage. The building lot coverage ratios tend to be 0.2 to 0.4, meaning most of the land is surface parking lots or landscaping.

Reimagining Cities: Disrupting the Urban Doom Loop 9

15 U.S. CITIES USED IN THIS REPORT

Seattle

Boston

New York Philadelphia

Washington, DC

Chicago

Denver

San Francisco

Raleigh

Los Angeles

Phoenix

Atlanta

Dallas

Austin

Miami

development, otherwise known as suburban 7 sprawl, a 20th century American invention. New, drivable suburbs had pent-up demand in the post-World War II era through to the end of the 20th century. This type of development relied exclusively on cars and trucks, using new freeways and major roads to connect cities with burgeoning suburbs, and later, beltways to link suburbs to other suburbs. Americans moved out of cities in droves, drawn by the allure of new cars, homes and their own piece of the American dream. This trend reflects the adage that “transportation drives development.” Unexpectedly, the late 1990s and early 21st century brought a rebirth in market demand for the opposite of Drivable Sub-urbanism: “Walkable Urbanism,” which plays to the inherent strength of cities. 8 From 2000 2020, the population of these 15 cities reversed their 50-year declines, increasing their 18% share of metro area population in 2000 to 21% by the end of 2019. In other words, the marginal rate of population growth in these cities grew 16 times their

2000 market share, while their surrounding suburbs rate of growth declined. Hence the “return of the city” development trend. Besides population, there are other ways to measure Walkable Urban pent-up demand. A related research report by Places Platform, LLC & Smart Growth America, Foot Traffic Ahead 2023 , focused on the 35 largest U.S. metropolitan areas and showed that by the end of 2021, home prices in Walkable Urban areas were 40% higher per square foot (psf) than those in Drivable Sub-urban areas, and multifamily rental premiums were 45% higher. 9 Walkable Urban multifamily rental housing had been gaining market share at twice the rate it did in 2018, indicating that the market share for Drivable Sub-urban rental housing was falling.

The Pandemic and Rising Fears of a Doom Loop

The pandemic and subsequent lockdowns appeared to interrupt the trend of people moving to cities, first due to fears that

7 “Suburban” refers to the metropolitan land mass outside the boundaries of the central city. In the metropolitan areas of the 15 cities under study in 2023, 80.2% of the population is in the suburbs and 19.8% live in their cities. 8 Walkable Urban and Drivable Sub-urban are binomial in nature in that these are non-overlapping and mutually exclusive. 9 Rodriguez, Michael and Christopher Leinberger. Foot Traffic Ahead 2023. Smart Growth America. (16)

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high-density, Walkable Urban places might make residents vulnerable to infection and then due to the reemergence of many of the old fears of cities from the second half of the 20th century. In the 15 sample cities, city populations once again declined, dropping 1.9% from the end of 2019 to the end of 2020. However, the post-pandemic population decline has once again reversed, with a slight rebound from 19.2% in 2021 to 19.8% at the end of 2023. This population gain showed that, once again, the city population growth rate was climbing, while the suburbs were slightly declining. This is an indication that the “return to the city” trend may have reemerged. Role of Real Estate in the U.S. Asset Base Why are metropolitan and central city development trends important? For one, because the built environment is the largest asset class in the economy . To purchase the entire U.S. and all its asset classes, you would have to write a check for $168 trillion (about $520,000 per person in the U.S. as of 2023). 10 Real estate assets make up $63.5 trillion, about 37.8% of all U.S. assets. 11 Breaking down these real estate assets, for sale residential properties account for 25.9% of the total U.S. assets ($43.5 trillion), while commercial and income-producing real estate makes up 11.9% (about $20 trillion). 12 Publicly- and privately-owned infrastructure that connects these real estate assets is estimated to be 14.9%, about $25 trillion as of 2022. 13 This means the built environment (real estate and infrastructure) is worth $83.5 trillion (about $260,000 per person in the U.S.) or 52.7% of the asset value of the U.S. economy . The built environment—both real estate and infrastructure—is by far the largest asset class in the economy. It also plays a crucial role in local government funding. In 2021,

local governments collected $609 billion in property taxes, or 30% of their local general revenue. 14 RESEARCH APPROACH To analyze metropolitan areas and cities, Places Platform, LLC has developed proprietary intellectual property tools, including its Place-based Analysis , which analyzes real estate data from the parcel level up.

TOTAL UNITED STATES ASSET ALLOCATION Real estate and infrastructure assets, with comparisons to other assets (e.g., bonds, stocks, business ownership and cash)

25.9%

47.3%

11.9%

14.9%

For-sale Housing Commercial/Income Property

Infrastructure All Other Assets

Source: Places Platform, LLC and Cushman & Wakefield Research based on analysis of data from the U.S. Bureau of Economic Analysis, CoreLogic, Real Estate Roundtable, U.S. Department of the Treasury

10 National Data: National Income and Product Accounts. Table 5.10 Changes in Net Stock of Produced Assets (Fixed Assets and Inventories). Bureau of Economic Analysis, U.S. Department of Commerce. Nov. 2023. 11 Malone, Thomas. “Residential Real Estate: Largest US Asset Class but Not Biggest Economic Driver.” CoreLogic. 12 Commercial Real Estate By The Numbers: 2023. The Real Estate Roundtable. 2023.; Vernon, Hannah. “Total Value Of All Residential Real Estate Hits Record $47 Trillion.” b Magazine. 2023. 13 Financial Statements of the United States Government for the Fiscal Years Ended September 30, 2022, and 2023. Bureau of the Fiscal Service. U.S. Department of The Treasury. 2022. 14 Tax Policy Center Briefing Book. Urban Institute and Brookings Institution. Updated Jan. 2024.

Reimagining Cities: Disrupting the Urban Doom Loop 11

The place-based analysis in this report/ study includes the following:

data for businesses, governments, nonprofits and universities requires manual acquisition since there are only partial public or private data sets available. It is estimated that owner-user businesses, governments, nonprofits and university real estate contain approximately 5%-10% of all real estate inventory in the 15 cities.

• Data of all real estate products in the 15 sample cities are collected. This includes data for multifamily rental, for-sale housing, office, retail, industrial, cultural (museums, live theater, etc.), sports and events facilities, convention centers, government buildings, universities, etc. These product types are divided into two broad categories: » Income properties are leased or rented properties that are cash flowing. The data is captured by private real estate datasets from Cushman & Wakefield, CoStar, etc.

• Data is collected from the “bottom up” at the individual property parcel level. We let the market determine the boundaries of places under analysis, not super imposed, top-down artificial boundaries, such as ZIP codes or traditional commercial real estate submarkets. • All real estate product data is sorted into the Places Lens© , which has two dimensions, as shown in the visual on the next page. The first divides all land into the two development forms: Walkable Urban 15 and Drivable Sub-urban, 16 mentioned earlier. The second dimension divides all land into the two land use economic functions: regionally significant 17 and local serving. 18 The resulting four-cell matrix is the Places Lens©.

Owner-user real estate is owned and used exclusively by households (for-sale housing) or businesses, governments, nonprofits and universities (referred to as owner user). For-sale housing datasets are available from many sources. (Our research employs CoreLogic for sale housing datasets.) However, owner-user commercial real estate

»

15 Walkable Urban development form uses multiple transportation systems to get to the place (cars, trucks, transit, biking and walking) but once you are there nearly everything is within walking distance (about 1/2 mile), which controls the land mass of the WalkUP. These places are high-density and include small blocks, sidewalks, and narrow roadways. Walkable Urban development is a mix of uses built at a high density; generally starting at 1.0 floor area ratio or FAR, generally going to 4.0-5.0 FAR but can go even higher such as the case of Midtown Manhattan at about 40.0 FAR, by far the highest density in the country. Due to the constraint of walking distance, Walkable Urban places tend to be between 100-800 acres in size. 16 Drivable Sub-urban development form uses cars and trucks for the vast majority of trips from home, shopping or work. Transit, biking and walking tend not to be practical. Drivable Sub-urban development segregates nearly all uses, separating for-sale housing from rental housing, retail from office and industrial. Drivable Sub-urban density is much lower than Walkable Urban places, generally starting at 0.05 FAR and topping out at 0.8 FAR—in other words 1/10th to 1/40th the density of walkable urban places. This sprawl is why this development form generally uses over 95% of all metropolitan land. 17 A regionally significant place is a concentration of base or export jobs and organizations that make the major contribution to the GDP of the place, city, and metropolitan area. The jobs that are in regionally significant places tend to be among the highest paying in the metro area. 18 Local-serving economic function is focused on the needs of the residential housing (both for-sale and rental) of the place. Local-serving places tend to be 90% residential square footage and 10% of the square footage is commercial and public sector services. The employment base tends to be grocery and drug store jobs, police and firefighters and local-serving professionals (doctors, dentists, realtors, lawyers, accountants, etc.).

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It is important to note that Walkable Urban places and Drivable Sub-urban places can both be in the city or suburbs.

equity, and government fiscal measures. For example, the chart below shows the results of Foot Traffic Ahead 2023 Places Platform, LLC and Smart Growth America research, analyzing the largest 35 U.S. metropolitan areas. 19 The Walkable Urban places (both WalkUPs and Walkable Neighborhoods) are only 1.2% of the total metro land mass. The balance, 98.8% of all metro land, is Drivable Sub-urban. However, the 1.2% of land that is Walkable Urban generates 35% of the GDP of the 35 largest metropolitan areas, an economic outcome that is not well known. Please note that Reimagining Cities research will yield different land mass percentages, since the focus of this report is on cities and not their broader metropolitan areas. In addition, cities tend to have more Walkable Urban land, due to their 19th and early 20th century Walkable Urban development patterns, resulting in less Drivable Sub-urban land mass. •

Each of the four cells of the Places Lens© are referred to as:

•

WalkUPs: regionally significant Walkable Urban places Walkable Neighborhoods: locally serving Walkable Urban places DriveINs: regionally significant Drivable Sub-urban places Drivable Communities: locally serving Drivable Sub-urban places

»

»

»

»

• The four cells of the Places Lens© perform differently across nearly all metrics. Two decade s of research have shown the four Places Lens© types generate fundamentally different geographic, market, economic, social

THE FOUR METROPOLITAN LAND USE OPTIONS The Places Lens© divides 100% of land use in a metropolitan area or city. This table is of the 35 largest U.S. metropolitan areas, showing the land use by each of the four cells and the GDP generated by both Walkable Urban and Drivable Sub-urban places. The Reimagining Cities research is based on 15 sample cities, so the land distribution will show a higher percentage of land that is Walkable Urban and a consequent lower amount that is Drivable Sub-urban.

Economic Function

Regionally Significant

Local Serving

Metro Land Walkable Neighborhoods 0.8%

Metro Land WalkUPs 0.4%

Walkable Urban

35% of Largest 35 Metro GDP

Metro Land DriveINs 3-4%

Metro Land 90-94% Drivable Community

Drivable Sub-Urban Development Form

65% of Largest 35 Metro GDP

Source: Places Platform, LLC; Smart Growth America

19 Rodriguez, Michael and Christopher Leinberger. Foot Traffic Ahead 2023. Smart Growth America. https://smartgrowthamerica.org/wp-content/ uploads/2023/01/Foot-Traffic-Ahead-2023.pdf

Reimagining Cities: Disrupting the Urban Doom Loop 13

Our analysis in Reimagining Cities focuses exclusively on WalkUPs in the 15 sample cities. This approach allows us to concentrate our research on the wealth-creating, export/base jobs and businesses within these WalkUPs. WalkUPs are further divided into four subtypes, each with distinct histories, target markets, real estate product types and future growth potential. 20 The four subtypes include:

Downtown Of the 15 cities, 14 have only one downtown, while New York City (Manhattan) has two: the Financial District and Midtown. Downtowns tend to be the densest WalkUPs in a city and in their metropolitan areas. 21 Downtown Adjacent These are WalkUPs that surround and geographically touch the Downtown WalkUP. If the geography allows, Downtown Adjacent WalkUPs can surround the Downtown in a 360° manner. Much of the Walkable Urban development in the early 21st century has been in Downtown Adjacent places; many did not exist in 1999. Downtown Adjacent WalkUPs tend to be somewhat less dense than the Downtown and usually have a unique character due to different product program mix, history, and their appeal to different market segments. Urban Commercial These WalkUPs are not connected to the Downtown but may be connected to a Downtown Adjacent WalkUP and they tend to be focused on urban entertainment, high end retail or an arts district. Urban University These WalkUPs are anchored by one or more universities, resulting in nearby student neighborhoods, urban entertainment districts, and potentially Innovation Districts that benefit from university research spin-offs.

WalkUPs

20 For a suburban comparison, there are three WalkUP subtypes in the suburbs. These three types include Suburban Town Centers, Redevelopment of Edge Cities and Green/Brownfield Development. This analysis does not focus on these subtypes. Collectively they are referred to as the urbanizing suburbs. 21 The Reimagining of the City research determined that Manhattan Borough is the “center city” of metropolitan New York. The merger of the five Boroughs in 1898 brought much of the then suburbs of Manhattan into the city. The comparable situation would be if Boston annexed Cambridge or Washington, DC kept Arlington and Alexandria, rather than de-annexing 36% of the original District of Columbia in 1847.

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Hypotheses: We developed a series of hypotheses before starting this research.

1. Downtown WalkUPs are currently facing unique challenges. The potential for a doom loop would mainly be focused on one of the four WalkUP subtypes: Downtowns. Most Downtown Adjacent, Urban Commercial and Urban Universities are doing well economically, though perception of a Downtown WalkUP doom loop may negatively influence the perception of the other three subtypes, as they are found “guilty by association.” 2. The city crime spike in 2020 created the perception that cities were unsafe, and it would take years to both reduce crime and change this negative perception. 3. Downtown WalkUPs have violated portfolio theory. Downtowns put most of their real estate inventory in office space, concentrating most of their product program in one basket. Downtown Adjacent, Urban Commercial and Urban University WalkUPs have a more diversified portfolio, which has eased their recent recoveries. 4. WalkUPs have an outsized impact on cities. Collectively, the four WalkUP subtypes occupy very little city land mass (3% to 5%) but generate 25% to 50% of the city’s GDP and an equally high percentage of fiscal (tax) revenues for the city budget.

The rest of this study will test these hypotheses and explore other key findings:

Virtuous Cycles Description of the concepts of doom loops and virtuous cycles, with several historical case studies of cities that reversed or avoided a doom loop.

Real Estate Performance Analysis of the real estate economics in the 15 cities in

The Purpose of Place

Reimagining the City Conclusions from the study and recommendations for how WalkUPs can optimize real estate to maximize positive outcomes, focusing on real estate valuations and GDP growth.

Exploration of the importance of placemaking in cities, and the impact of visitor traffic, crime and homelessness.

this study, with a focus on product portfolio makeup, performance (i.e., rents and valuations), GDP production, and a proprietary Places Platform, LLC /Cushman & Wakefield Product Diversity Index.

Reimagining Cities: Disrupting the Urban Doom Loop 15

VIRTUOUS CYCLES: HOWCITIES AVOID DOOM LOOPS AND THRIVE

“Doom loop” is a new term for an old phenomenon. Cities and metropolitan areas are always changing, and that change is either moving negatively in a doom loop (also referred to as a downward spiral) or moving up in a virtuous spiral. Stasis is generally not an option. The various real estate products and business sectors of either WalkUPs or DriveINs (regionally significant Drivable Sub-urban places) reinforce whether they are in a doom loop or a virtuous spiral. Drivable Sub-urban development, a fundamentally new concept in building human settlements, began in the U.S. in the mid-20th century and later spread throughout the world. The invention, manufacturing and proliferation of cars and trucks, along with the expansion of roads and employing the oil, automobile, insurance and finance industries, created Drivable Sub-urban places in metropolitan America. Drivable Sub-urban development literally “drove” most of the economy. Research conducted in 2023 by Places Platform, LLC and Smart Growth America showed that in the largest 35 metropolitan areas, 98.8% of metro land use is Drivable Sub-urban and nearly all of it has been built since 1950. Only 1.2% of metro land in those 35 cities is Walkable Urban. This suburban sprawl costs the country more than $1 trillion (about $3,100 per person in the U.S.) a year

in maintaining the infrastructure, new public works, driving and health costs. 22 However, despite the costs, the market embraced this new way of travel and living that the automobile created. Regionally significant places, both WalkUPs and DriveINs, are where most of the GDP is generated in our metropolitan areas and cities. However, WalkUPs tend to be far more complex than DriveINs. Therefore, transforming a WalkUP doom loop into a virtuous spiral requires more elements to be changed over a longer period of time. DriveINs can potentially reverse a doom loop by changing fewer elements, such as renovating a regional mall. In this section, we examine historical case studies of WalkUP doom loops that have been reversed in New York City, Detroit, Seattle, Denver, Pittsburgh and New Orleans. THE WALKUP ORCHESTRA WalkUPs are an “orchestra of instruments,” which is complex and difficult to manage. They are concentrated in the central city of a metropolitan area, and they are important for central city economies, public sector budgets and social activities, such as festivals, demonstrations, and celebrations. Given the importance of these places, the focus of this research is on the WalkUPs in the sample 15 cities.

22 Litman, Todd. “Analysis of Public Policies that Unintentionally Encourage and Subsidize Suburban Sprawl.” The Global Commission on the Economy and Climate, 2015.

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Place management curates the experience of residents, employees and visitors, and represents a new level of governance beyond federal, state, metropolitan, and county and city levels. Established by state government enabling legislation, place management tends to be private sector-funded through increased property taxes. While there are various forms of place management, the most common is a business improvement district (BID), which provides additional services beyond those provided by the city, such as enhanced cleanliness and safety, plus the management of festivals, parks, economic development and infrastructure investment.

Variety of integrated real estate product types, including for-sale housing, multifamily rental, oce, retail, hotel, industrial, convention center, professional sports facilities, etc.

Mixed-use developments (e.g., retail on the ground level with oce, housing and/or hotel above) or a mix of uses, all within a half-mile walking distance.

Place Management

Diverse Development Mix

Transportation infrastructure for

cars/trucks (freeways and streets), parking facilities (on-street,

surface lots and above-grade or

Higher Density

underground decks), transit (rail and bus), bike paths, walking infrastructure (sidewalks, pedestrian trails and crosswalks), directional signage and controls (e.g., trac lights) for vehicles and pedestrians.

Floor area ratio (FAR) ranges from 1.0 to 40 (with 40 being specific to Manhattan), but most WalkUPs being built today have a FAR between 1.0 and 5.0.

THE WALKUP ORCHESTRA

Cars, Trucks and Transit, Along with TOD (transit-oriented development)

The land mass ranges from 100 to 800 acres, with the average around 300 acres.

Vibrant, Active Spaces

Transit-oriented development (TOD) around passenger rail transit and freight-oriented development around freight yards.

Major Institutions

Neighborhood parks and plazas.

Cultural institutions, nightlife and urban universities.

Facilities for professional and university sports, including basketball, ice hockey, football, baseball and soccer.

Government facilities (federal, state, metropolitan and local), urban universities and corporate headquarters.

Reimagining Cities: Disrupting the Urban Doom Loop 17

It should be noted that WalkUPs are also appearing in the suburbs, including redeveloped suburban town centers (e.g., Pasadena, CA; Bethesda, MD; Media, PA), redeveloped DriveINs (e.g., Bel-Mar, CO; Tysons, VA; Bellevue, WA) and greenfield and brownfield redevelopment (e.g., Avalon, GA; Assembly Square, Somerville, MA; Reston Town Center, VA). Research conducted by Places Platform, LLC and Cushman & Wakefield 23 leads us to conclude that the major development trend of the next 20 years will be the “urbanization of the suburbs,” providing WalkUPs for the 82% of the metropolitan American population that lives in the suburbs. WalkUPs command rent and price premiums and have been gaining market share in the early 21st century due to the walkable, complex and mixed-use nature of these places. Each new real estate project adds complexity to WalkUPs, increases foot traffic, offers more options for residents, employees and visitors, and boosts real estate valuations. This leads to higher tax revenues with a lower cost of government services psf. 24 These factors can lead to reduced crime rates because more people on the street increases vigilance. They may also lower the percentage of people experiencing homelessness by providing more affordable housing options and better access to necessary services, thanks to increased government revenues. In addition, walkable urban households often have lower transportation costs, which typically make up 17% of U.S. household spending—the second largest household spending category. 25 Together, this orchestra creates lyrical animation in WalkUPs at different hours of the day and night, throughout the week. During the workday, a WalkUP may have a business-focused character, while evenings and weekends can bring a calmer and more serene atmosphere. Just a few blocks away, you might find a vibrant entertainment area with restaurants and nightclubs. Then two blocks further there may be a quieter neighborhood with a more residential feel. Additionally, some WalkUPs feature major sports arenas that attract thousands of fans

for games and events, adding yet another layer of activity and character. However, when one instrument in this “orchestra” is out of tune, it can have a negative impact on the entire performance, degrade the overall experience, and potentially trigger a doom loop if not addressed. DriveINs have far fewer components than WalkUPs, but typically include some combination of the following elements: • Segregated product types that require a car or truck to connect with product types, such as multifamily rental housing, office spaces, retail, hotels and industrial areas. • Most transportation trips are made by car or truck, with parking primarily in private surface lots. • Floor area ratios (FAR) are between 0.2 and 0.5, which is much lower compared to WalkUPs. • Transit, biking and walking are often impractical and may be unsafe; sometimes there are no sidewalks. • A major anchor for a DriveIN is often a regional mall, which can range from 600,000 to 2 million square feet (msf), averaging about 900,000 square feet (sf) and is usually surrounded by large surface parking lots covering 70% to 80% of the land area. • Crime tends to be less of a problem due to private land ownership, lower population density and limited accessibility by transit or walking. • Homelessness is less visible because access to DriveINs is limited, and once there, the dispersed nature of the area makes it challenging to navigate on foot. • Management is generally handled at the property level by the private sector. • Occasionally, private property owners may form voluntary partnerships to address common issues such as marketing, government relations, and sometimes shuttle bus services around the DriveIN.

23 Urban to Suburban: The Growing Shift to the Suburbs as COVID-19 Changes the Way People Live 24 In a later section we will explore how WalkUPs in the 15 cities analyzed in this study account for 36.5% of citywide tax revenue while only comprising 24.5% of real estate inventory and 3.0% of land mass. 25 U.S. DOT Bureau of Transportation Statistics

18 Cushman & Wakefield

DOOM LOOPS AND VIRTUOUS SPIRALS Doom loops manifest when buildings in a WalkUP or DriveIN experience declining valuations, often due to resident and business out-migration. This results in the owner holding less equity in relation to debt. As equity decreases, there is less incentive and capacity to invest in the property. 26 The ripples of doom loops spread to neighboring properties, especially in WalkUPs, where appraisals drop, capitalization rates rise (indicating lower valuation), and eventually property taxes decline. This reduces the local government’s resources to maintain public services. With fewer public and maybe even less place management resources

for security and cleanliness, crime and trash increase, and create a negative, self reinforcing downward spiral. Once a WalkUP is caught in a doom loop, addressing one or two issues—even if moderately successful—will not be enough to reverse it. 27 A comprehensive strategy, with many components implemented over a minimum of three to five years is needed. 28 However, reversing a DriveIN doom loop may require only one or two initiatives, such as rehabilitating the regional mall or adding a new hotel. DriveINs have fewer components and social challenges (like crime and homelessness) that can contribute to a doom

INGREDIENTS OF DOOM LOOPS

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s

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s

s i

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Out-migration of residents and businesses

w e

e n

L o

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e s

(Possible) increased tax rates or decreased spending to make up for lost revenue

Lower implied real estate values

Increased Disinvestment

n u e s

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Credit tightens/ becomes more expensive

c l i

Banks & lenders incur losses

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Source: Places Platform, LLC; Cushman & Wakefield Research

26 Gupta, Arpit, Candy Martinez and Stijn Van Nieuwerburgh. “Converting Brown Offices to Green Apartments.” National Bureau of Economic Research. 2023. (3) ; Loh, Tracy Hadden and Hannah Love. “Breaking the ‘urban doom loop:’ the future of downtowns is shared prosperity.” Brookings. 2023. 27 JIang, Erica Xuewei, Gregor Matvos, Tomasz Pickorski and Amit Seru. “Monetary Tightening, Commercial Real Estate Distress, and US Bank Fragility.” National Bureau of Economic Research. 2023. (6) 28 Nieuwerburgh, Stjin Van. (34)

Reimagining Cities: Disrupting the Urban Doom Loop 19

Virtuous Spirals Agglomeration theory—the geographic concentration of economic, social, cultural, sports and residential activity—is the catalyst that triggers a WalkUP virtuous spiral. It occurs because firms, workers, residents and visitors benefit from being close to one another. 29 However, the combination of virtual meeting technologies and the expectation for work location flexibility among North American office workers 30 may have undermined some benefits of professional knowledge spillovers that result from agglomeration. It’s worth noting that businesses continue to commit to office space in cities, even as overall footprints are shrinking. Cushman & Wakefield data indicates that 40% of Class A office leasing in the first half of 2024 occurred in CBDs, which is in line with the 2017-2019 average of 42%. All of this points to the continued importance of office space in a city’s life and GDP generation. However, for WalkUPs, it is crucial to have a diverse product mix of property types that do not overemphasize any single type.

loop. For example, the King of Prussia Mall outside Philadelphia has continually invested in expansion to become the largest mall on the East Coast. It exemplifies the approach of making the same basic product, just made “bigger and better.” Ultimately, a doom loop occurs when both (1) market share and (2) relative real estate valuation PPSF is declining. Walkable Urban places in the late 20th century would have had to double their market share growth just to maintain its mid-20th century market share. During the same time period, Drivable Sub-urban locations were growing two to three times faster than their mid-20th century market share. The early 21st century has witnessed Walkable Urban market share growing two to three times faster than their 2000 market share. While in some metropolitan areas, Drivable Sub-urban market share growth, especially for regional malls and office parks, has been in decline; these places would have had to grow twice as fast just to maintain their year 2000 market share.

EARLY 21ST CENTURY

LATE 20TH CENTURY

would have had to

growing 2-3X than their 2000 market share

2X

MARKET SHARE GROWTH

FASTER

to maintain its mid-20th century market share.

WALKABLE URBAN

growing 2-3X than their mid-20th century market share

would have had to grown

2X

FASTER

AS FAST

DRIVABLE SUB-URBAN

to maintain their year 2000 market share

29 Zouaoui, Amira Manel, Hichem Zitoune, and Meriem Chabou. “The Critical Mass: A Trigger Parameter for Cultural and Creative Cluster Strategies in Metropolises.” 3rd International Conference of Contemporary Affairs in Architecture and Urbanism. May 2020. 30 Cushman & Wakefield Experience Per Square Foot TM

20 Cushman & Wakefield

INGREDIENTS OF VIRTUOUS SPIRALS

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City becomes more competitive

S u

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s

Attraction of other successful developments (agglomeration)

Developers incentivized to invest

Critical Mass of Successful Development and Self-sustaining Population

I n c r

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d

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Increased high-quality business attraction

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Better public amenities and services

p

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Source: Places Platform, LLC; Cushman & Wakefield Research

The complex mix of various product types within walking distance of each other means that every new development adds more foot traffic. 31 For example, if a restaurant is within walking distance of a new 200-unit rental apartment with an average of 1.5 people per unit, that means 300 new potential customers are now conveniently nearby to help increase sales and boost real estate valuations without any investment on the part of the restaurant. Another example is a sports and event arena that needs parking, primarily during the evening and weekends for events like games and concerts. Nearby office buildings, which have parking that is mostly occupied

during the workday and empty at night and on weekends, can offer their parking spots to arena visitors. Each additional dollar of parking revenue during these times generates a high net profit—around 90%— since only a small fraction —about 10%—goes toward operational costs. This increased parking revenue boosts the office building’s valuation and drives increased tax revenues just by being located close to the arena. These cycles can be sustained long term once a WalkUP achieves critical mass. This clustering of a diverse array of businesses, land uses and amenities creates a synergistic environment that enhances the city’s competitiveness and attracts more

31 McCann, Philip and Frank van Oort. “Theories of agglomeration and regional economic growth: a historical review.” Handbook of Regional Growth and Development Theories, 2020.

Reimagining Cities: Disrupting the Urban Doom Loop 21

residents. 32 Although WalkUP critical mass has not been quantitively defined, a possible definition is that it is achieved when no public sector subsidy is needed to finance the next project in the WalkUP. Once critical mass is reached, the WalkUP will continue to grow independently through private investment and financing. Employment alone is not enough to sustain virtuous spirals; residential and retail spaces are even more important. Sufficient residential development—either multifamily rental or for-sale housing—is crucial since it represents the largest asset class in the built environment—and as we stated earlier, the built environment is the largest asset class in the U.S. economy. Residential makes up 60% of all real estate square footage in our cities, so it must be prominent in our WalkUPs. In addition, residential areas drive demand for local-serving retail, one of the largest (by square footage) and lowest risk retail categories. For example, walkable urban grocery stores, ranging from 5,000 to 80,000 sf and open 12-24 hours a day, activate the streets around them. However, these stores require a base of 5,000 to 10,000 housing units per store before they consider opening. As a “follower” land use, local-serving retail must have existing demand in place within walking distance before opening its doors. While multifamily rentals and for-sale housing make up 60% of all square footage in our 15-city sample, they account for only 28.5% of the current WalkUP inventory. This discrepancy highlights the need for WalkUPs to add more residential inventory, as it is important economically and socially, and will ultimately drive additional local-serving retail. Another crucial element in creating and sustaining virtuous spirals is effective and creative placemaking through place management (e.g., business improvement districts, Main Streets, private sector place management). Place management enhances the level of service necessary for WalkUPs to succeed, but beyond the base service

level a city provides. These services could include weekly power washing of sidewalks, homeless outreach, and safety ambassadors connected to the police, among others. A place management organization, such as a business improvement district (BID), is funded by property owners through a 5% to 10% increase in their property taxes, approved via a ballot initiative through state government legislation. Effective place management allows a WalkUP to capitalize on unique assets that make it a desirable place to live, work and play, providing fixed and operating capital to ensure safety and vitality. 33 Two Manifestations of Doom Loops: Structural and Episodic The first type of doom loop is structural, where prolonged social or economic decline of a city occurs because the market demands a fundamentally different live/ work/play development form, or a major industry that supports the economy moves away or collapses. In the late 20th century, this structural shift led to disinvestment in walkable urban cities in the U.S., with 58.5% of all assets invested in real estate and infrastructure moving to Drivable Sub urban areas on the edges of central cities and into sprawling suburbs. 34 This structural doom loop left some cities effectively—and actually—bankrupt. The second type of doom loop is episodic, triggered by events such as economic recessions, public health crises, natural disasters, or political or civil unrest. These events threaten the perceived or actual safety of walkable urban places for residents and employees, causing a sudden economic downturn. CASE STUDIES Overcoming a Structural Doom Loop: New York City In 1961, New York City started running annual budget deficits because the city’s revenues could not fund expenditures or debt payments. By 1974, the annual deficit

32 Zouaoui, Amira Manel, Hichem Zitoune, and Meriem Chabou. “The Critical Mass: A Trigger Parameter for Cultural and Creative Cluster Strategies in Metropolises.” 3rd International Conference of Contemporary Affairs in Architecture and Urbanism. May 2020. 33 The Virtuous Cycle of Placemaking. PennState Extension. August 2022. 34 Cevik, Serhan and Sadhan Naik. “Bubble Detective: City-Level Analysis of House Price Cycles.” International Monetary Fund working paper. February 2023. (6)

22 Cushman & Wakefield