Building on Success

Cities of the markets in this study need to protect their competitive advantage and economic power by attracting growing and innovative businesses, a talented labor force and long-term residents of all ages. Taking advantage of strengths and eliminating weaknesses will help sustain cities as centers of attraction, even as the nature of work changes.

The Baseline

Each archetype faces different issues, but weakness in the office market, especially downtown, is the top and most common challenge. Since the pandemic, structural change around how people work has accelerated, and the office’s purpose is transforming. Tenants are downsizing and leasing less space to adjust to lower utilization, leading to historically high vacancy rates and long-term obsolescence. Employees are not commuting into cities on a daily basis, preventing downtown foot-traffic levels from fully recovering. This is especially true of Mixed Majors, where long commutes, inadequate public infrastructure and safety concerns combine to make office utilization rates among the lowest in the nation. Given this reduced foot traffic and the persistence of hybrid work, cities remain challenged to ignite reinvention and ensure continuing economic strength.

Downtown recovery is farthest along in Developing Destinations.

Figure 21: Downtown Recovery Rankings

Mapping Market Districts

Although foot traffic in cities is reduced on average, in some places it has been redistributed and is benefiting daytime foot traffic in residential and mixed-use areas as people are spending more time working near where they live and play.

CBRE designed a mapping framework to identify clusters of vibrant urban characteristics and study their effect on real estate market fundamentals. The maps include transit lines, major sporting venues, museums and Michelin Guide-recognized restaurants. The clusters shown on the interactive maps below include:

• Vibrant Residential: Clusters of urban residential density with walkable retail, dining and entertainment venues.
• Vibrant Mixed-Use: Vibrant Residential with the addition of prime office, setting the standard for dynamic districts.
• Prime Business: Predominantly commercial district with prime/trophy offices buildings.
• Non-Prime Business: Commercial district with no prime office space, commonly suburban office parks and aging downtowns.
• Mixed-Use: Areas with a mix of office space and housing, commonly at the edges of commercial districts.

The location and size of vibrant urban clusters are unique in each of the 19 markets studied. Each city’s physical structure has supported or inhibited the clusters' formation. Explore the maps below to see where these districts appear in the 19 markets:

Location Matters

Prime office buildings—characterized as newer construction with a wide array of amenities and wellness standards—achieve higher occupancy and rental rates than lesser-grade buildings. Demand for space in prime buildings has been heightened by companies’ increasing flight to quality to encourage office attendance by employees and support productivity. However, statistics suggest that occupiers desire more than just quality space. They increasingly care about where the space is located within the city as they look to enhance the holistic experience of coming to the office. Vibrant Mixed-Use districts—those with clusters of urban residential density and walkable retail, dining and entertainment venues alongside prime office space—are more attractive to office tenants, residents and retailers than their less-vibrant counterparts. More foot traffic for an extended timeframe (as opposed to a 9-to-5 office-centric district) and a diverse built environment offering dining, shopping, housing and working result in these properties having a symbiotic relationship with each other. As a result, Vibrant Mixed-Use districts are posting solid results:

• Prime office space, which is more concentrated in Vibrant Mixed-Use districts, is still achieving the lowest vacancy rates and highest rents of all.
• Regardless of class, office vacancies are lower and rents higher in Vibrant Mixed-Use districts vs. Prime Business districts.
• Apartment rents are 8% higher and the vacancy rate is 50 basis points lower in Vibrant Mixed-Use districts than in Mixed-Use districts.

The full extent of this trend will take time to unfold as office absorption overall remains challenged given the subdued leasing environment since mid-2022. Peak office construction deliveries have contributed to higher vacancy rates in many markets. This would have been a challenge even without the pandemic-induced trends that exacerbated vacancies. An annual average of 36.5 million sq. ft. of new Class A and prime office construction hit the market between 2020 and 2023, during a muted leasing cycle. However, from 2025 to 2029, Class A and prime office completions will drop to an annual average of 16 million sq. ft. As leasing activity picks up, demand for prime space will exceed new supply and it is fair to expect that demand will filter to the next tier of space, particularly in these Vibrant Mixed-Use districts.

Vacancy lower for all building classes in Vibrant Mixed-Use districts than in Prime Business districts.

Figure 23: Vacancy Rates by Class and District Type

Vibrant Mixed-Use districts that have significantly outperformed include those in the Developing Destinations downtowns of Austin, Charlotte and Miami. They are some of the only in the country with single-digit office vacancy rates, in stark contrast to their neighboring Business Districts within the same downtown:

• Austin: 9% in Vibrant Mixed-Use, 25% in adjacent Prime and Non-Prime Business districts.
• Charlotte: 9% in Vibrant Mixed-Use, 29% in adjacent Prime and Non-Prime Business districts.
• Miami: 7% in Vibrant Mixed-Use, 19% in adjacent Prime and Non-Prime Business districts.

In the downtowns of many Mixed Majors and Sprawling Darlings, Vibrant Mixed-Use districts also are outperforming more office-dominant districts (note that vacancy rates are for specified districts and may not include the entire submarket):

• Chicago: 15% in Fulton Market (Vibrant Mixed-Use); 28% in Central Loop (Non-Prime Business district).
• Washington, D.C.: 6% in The Wharf (Vibrant Mixed-Use); 24% in Core CBD (Prime Business district).
• Boston: 11% in Seaport (Vibrant Mixed-Use); 19% in Downtown (Prime Business district).
• Atlanta: 14% in Midtown (Vibrant Mixed-Use); 24% in Downtown (Non-Prime Business district).
• Denver: 14% in Union Station (Vibrant Mixed-Use); 36% in Downtown (Non-Prime Business district).

Broader Context

The success of any district depends on how well it retains and attracts residents and commercial tenants. CBRE’s 2022 Global Live-Work-Shop Survey concluded that 64% of U.S. consumers believe that office working in well-located, highly amenitized districts is more desirable.

While Vibrant Mixed-Use districts have displayed more resiliency, single-use zones composed of mainly office, retail or residential remain most common across U.S. markets. For example, although Developing Destinations have a relatively small amount of office space in Vibrant Mixed-Use districts, office vacancy rates in those districts are very low. Conversely, despite population and job growth in these Developing Destinations, office vacancy rates in the more business-centric districts are in the 20%-to-30% range.

Markets with districts that are underperforming would benefit from studying the overall landscape of the city and how these districts could better fit into it. Factors that contribute to success include proximity to public transit, proximity to other Vibrant Mixed-Use districts, existing tenant makeup, overall residential and commercial market demand, and unique characteristics of the district. Understanding this broader context is important before concluding that building more vibrancy alone will drive success.

The high concentration of space in Non-Prime Business districts across most markets represents a potential challenge, but also an opportunity to breathe new life into these areas through conversions and redevelopment. Municipalities can help spur this redevelopment by easing land use and zoning restrictions in districts where they want to see change. Some districts may have a more immediate need for transformation than others, but all need to keep a vigilant eye on the change required to future-proof markets and sustain a competitive advantage.

In most markets, more than half of office space is located in Non-Prime Business districts.

Figure 24: Share of Office Square Footage by District Type