Efficient mass transit is a critical enabling factor for the success of such a vibrant metropolitan downtown — without it, the offices and other skyscrapers that have come to define major cities would face substantial financial challenges.
Commercial real estate clusters in urban cores represent tens of billions of dollars in investments. Being a tenant downtown in a high-rise and the assumed economic benefits of being centrally located come at exorbitant rents, which businesses have paid for decades. The underlying assumption has been that the physical location of a firm’s offices is instrumental to its success.
COVID-19 has changed that. Given the circumstances, it is likely that businesses are reviewing their operating cost structures to determine whether the productivity benefits of downtown locations justify the occupancy costs.
The hyper-concentration of near 450,000 jobs in downtown Toronto requires a highly functional public transit system to transport the bulk of workers from their suburban residences to the downtown core. Any interruptions and breakdowns of the transit system imply workers may not get to their downtown offices efficiently.
With a noticeable decline in public transit carrying capacities, downtown-based employment clusters, which are increasingly dependent on public transportation, would experience a drop in commuting. Consequently, offices and buildings will be underutilized. Workers will continue to work from home, making telework more acceptable for large knowledge economy firms.
Consider that ICT advances and other developments have contributed to a significant decline in space provided per worker. In a report titled The Shrinking Office Footprint, REIS observed that in the early 2000s, “the typical employee was associated with about 125 square feet of additional space.” This was down from 175 square feet of additional space per employee in the late 1990s. The latest numbers suggest that each additional employee “has been associated with only about 50 square feet of additional office space.”
If COVID-19 related restrictions are withdrawn soon, the decline in work commutes and the emergence of telework may end up being a short-term trend. However, if transit system capacities are constrained over a more extended period, telework will remain widespread for a longer period, thus affecting the bottom line of tenants who occupy, but are not currently using, the expensive real estate in the urban core.
The future of work must find a balance between the conflicting objectives of sustaining the downtown core while not exacerbating congestion and affordability.
Murtaza Haider is a professor of Real Estate Management at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be reached at www.hmbulletin.com.