Future Cities

Long-Term Thinking

By: Richard Barkham, Global Chief Economist, Head of Global Research & Head of Americas Research

January 17, 2025 3 Minute Read

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Last year, I had the good fortune to visit 20 cities, mostly in the U.S. And from what I saw, I am convinced revival is underway.

Lest we forget, this year marks five years since COVID-19 entered our collective consciousness. For those of us who live and work in cities, the slump in downtown activity that the pandemic instigated was horrifying in its swiftness. The scale of impact was consequential, with 80% of Americans living in cities (and 20% in major cities).

But there’s good news for the new year. Led by people moving back downtown, U.S. cities are showing real signs of life and, maybe, are becoming the most compelling opportunities in global real estate.

For their residents, cities provide access to education, health services, entertainment, culture, family and friendship networks, careers and business opportunities. They are exciting and resilient and always changing.

For businesses, cities are markets, sources of talent, the nexus of innovation and investment.

Cities provide easy opportunities for gathering, and in that respect, restaurants have really caught my eye.

Wherever you look there’s a new restaurant, which is often full, and heaven help you if you want a reservation on a popular night.

Since 2021, there have been 1.1 million business applications and over 160,000 new businesses created in the food service and accommodation sector. In Business Insider’s ranking of top new restaurants, 40% are in downtown locations, more than a quarter are in inner urban locations, and about a third are in the suburbs.

No doubt, food and beverage—and the “evening economy” at large—are at the forefront of urban revival in the U.S.

Another proof point is the strength of demand for apartments.

Multifamily net absorption has been super vibrant in the last six quarters, in urban and suburban locations. Crucially, downtown areas of American cities have also produced strong growth in occupied stock.

People want to live in cities because they are efficient, wealth-generating and fun.

The data also shows that, like me, people want to visit cities, too. The RevPAR of urban hotels has slightly lagged the national hotels average but is comfortably above its pre-pandemic level.

Most importantly, America’s downtown streets are coming back to life.

On a visit to New York City early last year, I couldn’t get to a meeting on time because I had chosen to walk, and the streets were jammed with activity.

Data from Placer.ai indicate that 25 of America’s top 30 cities have pedestrian flows that are above pre-pandemic levels. Of course, the fortunes of the downtown areas are mixed: 68 downtown zip codes have a higher level of pedestrian movement than pre-pandemic, while 55 do not.

Even in the uber-challenged office sector, activity is on the turn.

In the U.S., gross leasing over the past few quarters has bettered its long-run trend of 50 million sq. ft. per quarter, with particularly strong growth in Manhattan.

Although offices have an overall vacancy rate of 20%, for the best prime-grade offices, 70% of which are downtown, the vacancy is closer to 15% and dropping quickly.

If America’s downtowns have started to recover, when will it be complete, and what will it look like?

On timescale, it may well take two cycles—roughly 18 years—to transition obsolete office space into new uses. As a point of reference, after the loss of manufacturing activity in the 1960s, it took until the 1980s for American cities to bounce back, driven by the rapidly expanding financial services sector.

Office conversions are rapidly gaining pace—179 planned in 2025, versus 103 in 2024 and 63 in 2023—but there is a long way to go. It is in everyone’s interest to support this trend.

Ultimately, the urban transition is necessarily unpredictable and needs to be market-led, in whatever direction that goes.

To get there quicker than the 18 years, we need more flexibility in land-use planning. We also need tax relief or subsidy to accelerate the demolition or conversion of obsolete stock.

We also need to consider what cities will look like in 10 to 20 years: more residential, more mixed-use, more driven by creative industries and the digital economy.

In fact, it is the live-work-play neighborhoods, often adjacent to the CBD, that are leading the recovery of America’s downtown areas. Look no further than Cherry Creek in Denver, Fulton Market in Chicago, Penn Plaza in Manhattan, the Seaport in Boston, Midtown in Atlanta, Midtown in Charlotte, Del Mar Heights in San Diego.

Developing buildings that meet the need for housing and leisure activity will be a good strategy. Making places will be better. Battery Park City in Lower Manhattan is an example of long-term placemaking on a grand scale in an American city, but smaller scale also works.

In either case, it’s time to think boldly long-term.

With interest rates higher for longer, real estate will not deliver the easy gains through cap rate compression that it has in the last 30 years. However, there is a massive need for new homes and an obvious desire to return to cities.

Developers and investors have a generational opportunity to lock in high returns—capitalizing on America’s gross shortage of housing and the long-term demand for city living.

And with the economy growing nicely, American cities offer the biggest opportunity in global real estate.

American downtowns are already on the move. And whether you’re an investor or developer looking for opportunity, or a business considering how to grow or evolve your operations in a major city, if you’re not already actively planning for what’s next, you may miss the moment.

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