Editor’s Notes: Domino Effect

City Vacancy Rates Continue to Rise

There is no doubt that the COVID-19 pandemic changed the business model. Some say it’s temporary, while others insist it was a permanent shift for the business landscape. During the pandemic, suddenly people found themselves working remotely, and surprise, most really preferred it that way.

Employees found that their commute time was eliminated, travel expenses went down, and they had more leisure time and money to spend. Many even moved from their downtown close-to-the-office apartments to roomier, cheaper, and more scenic areas. Several of those seeking permanent relocation outside a metro area mentioned benefits that include getting away from the noise, pollution, and the ever-increasing higher crime rates downtowns have been experiencing.

Now that COVID-19 restrictions have subsided, some employers want people back in the office, and they’re understandably facing resistance. Other firms have embraced the new work order and shut down or drastically reduced their office space.

As with everything, there’s a ripple effect. Less office and apartment rentals mean that landlords are now stuck with vacant buildings. With less office workers downtown, there’s less need for support businesses, such as restaurants, entertainment, grocery stores, hotels, taxis, etc. With the staff from these support industries out of work, it inevitably leads to more people on the streets, shuttered buildings, higher crime rates, and of course, lower tax revenues for the cities.

Cities across the nation are witnessing this phenomenon first hand. However, three major metro areas in the West have been affected the most, which are: Seattle, Washington; Portland, Oregon; and San Francisco, California.

San Francisco, in particular, has been in the news quite a bit lately. The owners of the prestigious Hilton Park and Parc 55 hotels have turned the properties back to their lender, J.P. Morgan Chase. The owners stated that they couldn’t meet their monthly mortgage payments. Shortly thereafter, the Westfield San Francisco Centre Mall followed suit. This comes on the heels of the closing of several Starbucks®, Walmart, CVS, and AT&T stores, as well as many long-established restaurants.

In Portland, it’s more of a mixed bag. Some major businesses, such as Amazon, are requiring workers to come back to the office, for at least part of the workweek. Car and pedestrian traffic in the downtown area is still below pre-pandemic levels, and is likely to remain so for the near future.

The Seattle area appears to be the healthiest of the three. Despite the downtown area being devastated by a series of riots, office vacancies, and higher crime rates of several years ago, Seattle is on the mend. While still not up to the same economic revenue-producing pre-pandemic levels, the city is slowly coming back.

Overall, city officials have been slow to react, with many still working from older budgets and outdated estimates of tax revenues, and failing to understand the trends that are taking place right under their noses. Consequently, many of their long-term and short-term policies and programs have yet to be revised. These policies and earmarked funds can include everything from infrastructure repair and improvement to social programs.

As business people, we all understand that when companies or corporations are faced with lower revenues, they have to look for ways to cut their budget in order to weather the economic storm. Unfortunately, cutting the budget doesn’t seem to be in a city official’s vocabulary. The standard attitude of, “We’ll just raise taxes to cover it,” no longer works when their tax base is withering on the vine. Whether or not they will wake up in time, or even if this trend is short-term or long-term, remains to be seen.

Marc Dodson