Posted by: Josh Lehner | January 6, 2023

Downtown Demand (Graph of the Week)

The combination of the latest population estimates, the many conversations we are having about them, and Willamette Week‘s latest issues highlighting ideas to improve Portland has me revisiting some work we did early in the pandemic. At a high level, we tried to get at the different sources of demand for downtowns or urban cores. Local residents who live in the areas are one source as they go about their everyday lives. Commuters coming in to work are another source, primarily during the daytime. Visitors — both from the suburbs, and tourists – are the third source, primarily during the evenings and on the weekend.

My main point is that all of these sources of demand are important. Many discussions are surrounding the impact of working from home and the loss of commuters. That is a structural change that really impacts the built environment given the large cluster of office buildings and the hub and spoke transportation network. While not the biggest source of downtown demand from a business perspective, many firms relied on the lunch crowd to prop up overall revenues and sustain more hours of operation. Commuter demand did not go to zero, but has declined significantly in urban cores across the country.

Retrofitting unused or underutilized office buildings to build more residential is a great idea. This is a heavy lift as many buildings cannot be converted, but where feasible it should be pursued, and policies can help make more of those possibilities feasible as are now currently being discussed. This helps solve two problems: our historical underproduction of housing, and repurposing some of the newly empty office space. Eventually offices will fill back up with overall economic growth as employment and start-up activity increases. But that process will take years at best, and possibly decades. In the meantime, last time I checked in with Multifamily Northwest and their Apartment Report, vacancy rates in the urban core were very low. Increasing resident demand can help jumpstart the process.

All of that said, when I try to decompose the sources of demand, it is the third piece, the destination demand that is largest. This comes from out-of-town visitors staying in hotels, doing touristy stuff even if on business and not vacation. But it also comes from local residents who head downtown to go out to eat, take in a show, go shopping on the weekend and things like that. The cluster effects of having many retail and leisure businesses all close together is real.

As one of our advisors points out there is a catch-22 type element to this discussion. As a community and an economy, we have to provide reasons for people to be downtown, which in turn will generate more revenue for businesses to be located there and/or increase hours of operation, but if residents don’t feel safe or those businesses don’t exist or aren’t open, then fewer people will want to visit and so on.

Lastly, another advisor notes that the commuter demand hasn’t been lost from a regional perspective, but rather has shifted out of the urban core and into smaller, neighborhood or regional commercial areas. The importance of those from an everyday living, and planning perspective are higher today than they were a few years ago.

Definitions: Urban Core here is the area between I-405 and the Willamette River. Other Services includes things like barbershops, nail salons, parking garages, and dry cleaners, among others.


Responses

  1. Hey, no mention of crime downtown affecting vacancies. Also, MultCo will have one of the, if not THE, highest income tax in the country, especially for those with good incomes.

    All of this chases out people with money, jobs and skills (ie net tax payers.) MultCo will be down more 2/3 in terms of gross dollar commercial property sales compared to 2021. In contrast, Clark is up 40% over 2021.


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