U.S. Cities Are Awash in Office Space, and That’s Costing Them Big-Time

For many developers, it’s been office, office, office for decades — but now it might be too much.

Most major U.S. cities have far too much “work” space and not enough “live” or “play” spaces, according to a new report from Cushman & Wakefield, which said that downtowns across 15 selected U.S. cities had an average of 70 percent of their entire real estate portfolio in some form of office product, with some cities even reaching 80 percent. These cities averaged just 15 percent of their real estate mix in residential properties, and 15 percent in retail, entertainment or hospitality. This imbalance is “creating widespread challenges,” the report said, for investors, lenders, city officials and surrounding communities.

If cities convert more lower-quality office buildings into housing or retail space, the report said that they could unlock as much as $340 billion in value, as a more balanced mix would “drive both higher real estate values and stronger economic growth.”

“The share of real estate that should be ‘work’ should not be 70 percent,” said Rebecca Rockey, author of the report and C&W’s deputy chief economist. “It should be closer to 42 percent. And the share that should be ‘live’ should be closer to about 30 percent, and ‘play’ should be closer to 26 percent. That could probably create somewhere between $120 billion in value on the lower end, and potentially up to $340 billion on the higher end.”

Out of the 15 cities analyzed, San Francisco, Boston and Washington were found to have the worst work-life-play balances. San Francisco’s Downtown work market share was found to be 87 percent, while its “live” properties accounted for 6 percent, and its “play” properties comprised 7 percent.

In Boston, the Downtown work market share was 85 percent, versus 8 percent for residential properties and 7 percent for retail properties. As for D.C., the city’s Downtown work market share was 86 percent, compared to 5 percent “live” and 9 percent “play.”

There was concern over Boston’s office market in particular as Beantown is the most dependent on commercial property tax revenue among major U.S. cities, Rockey said. Plus, Boston is projected to have a $1.7 billion deficit over the next five fiscal years, primarily due to declining office values, according to C&W’s report.

Some of the 15 cities analyzed fared better than others. Miami’s Downtown work market share was only 44 percent, just two percentage points off from C&W’s “optimal” number. Meanwhile, Miami’s “live” share was 29 percent and its “play” share was 27 percent.

“Miami’s downtown has performed very well, and I think that’s in part because they’ve embedded a very large ecosystem of housing in their Downtown,” Rockey said. “So, when something like a pandemic hits and you have the knowledge sector changing how it works by integrating more remote work in, you don’t have that over-dependency. And the market there performed quite well.”

The “optimal mix of real estate” determined by C&W may help other cities follow suit, as conversions of lower-quality office buildings to housing or retail purposes — once zoning changes are accounted for — could increase foot traffic, improve sales tax revenue, and even lower crime.

It’s also important to cater real estate to tourists for major cities like New York City, as Gotham saw nearly 65 million visitors in 2024, the second-highest figure in the city’s history, according to an announcement from Mayor Eric Adams in December.

And, while a lot of attention has been on return-to-office mandates, commuters only make up 20 percent of foot traffic in cities nationwide, while residents account for 13 percent and visitors make up 67 percent, C&W’s report found.

“[Tourists] go to ‘play’ real estate for the most part,” Rockey said. “They’re going to stay in hotels, they’re going to shop, they’re going to eat out, go to theaters and museums and so on. That real estate represents only 1.2 percent of the square footage of [downtowns].

“The economic impact of that kind of real estate to draw in economic activity through tourism is probably the most significant untold story of this whole post-pandemic recovery,” Rockey added. “We stay hyper-focused on office, which has its place, but there’s a bit of an obsession there.”

As for what city officials can do now to begin the process of reimagining their cities’ real estate, Rockey said it requires a “real conversation” between civic and public leadership.

“Every city has its own fingerprint,” Rockey said. “They have different industries that make up the fabric of their economy. So I think it’s about starting that conversation and getting all the stakeholders in the room, and that’s not just our industry and government officials, that’s a whole host of people involved in the community.”

Isabelle Durso can be reached at idurso@commercialobserver.com.