Can public transit save downtown office space?

Public transit agencies all over felt a noticeable impact of Covid 19 restrictions on mobility and assembly. The ridership experienced a precipitous decline at the onset of the pandemic in March 2020. Since then, transit ridership has been increasing and slowly marching toward the pre-pandemic levels.

Recently summarized data by Macrobond Financial shows that transit ridership on two of the developed world’s most extensive transit systems, i.e., London and New York, has recovered significantly. The chart below suggests that the subway system in New York City carries 70 percent of the passengers it carried before the pandemic, while the underground public transit in London, known as the London Tube, operates at 80 percent of the pre-pandemic level.

The financial viability of hundreds of billions of dollars in office real estate relies largely on the recovery in public transit ridership. Since most who work in office towers in high-density employment hubs in New York, London, and Toronto, among others, commute by public transit, a reluctance to travel by public transit or a lack of sufficient and frequent transit service could mean that ridership will remain below the pre-pandemic benchmarks.

The difficulty in getting to downtown employment hubs will imply that workers may continue to work remotely, resulting in lower occupancy levels, forcing some employers not to renew office leases. Already, vacancy rates are as high as 20 percent in some North American office markets.

The latest announcements from London are equally concerning where the HSBC has announced it will vacate the office space in Canary Wharf for a smaller office in central London. According to the reports, from a peak of 8000 workers at the Canary Wharf base, the number of employees HSBC hosts has significantly reduced because of remote work. Recall that when Canary Wharf was first completed, it became a financial disaster for the developers, who declared bankruptcy for two reasons. First, the timing was unsuitable because of the recession, and second, the newly developed office space was not well served by public transit. Canary Wharf’s fortunes improved once access by underground rail transit became possible.

Now I understand that some are not convinced of the longevity of remote work; even the Economist magazine believes that the working-from-home illusion is fading away , I sincerely believe that the economist and other remote work skeptics are the ones underestimating the impact of technology that enables remote work.

The technological innovations enabling remote work during the pandemic were still just the old generation of technology enabling remote work and making geography irrelevant for knowledge economy workers. Once we throw in the artificial intelligence-related developments, we will soon realize that the next iteration of innovative digital solutions will stretch our imaginations and abilities to embrace creativity in work and leisure while slowly blurring the line between them. Future technologies will reduce, if not eliminate, the distance between home and work.

The Economist seemed desperate for any evidence that casts a shadow on the relevance and longevity of remote work. The office and residential real estate markets are better indicators of the long and short-term priorities of workers and employers when it comes to remote work. The sustained and stubbornly high office vacancy rates and the increase in demand for residential real estate in the suburbs, away from the employment hubs, are indicators of how long-term planning is at play at the back of the minds of the stakeholders, even if they are not articulating as such. Already, suburban housing became more expensive on average in Toronto than in traditional urban parts, a direct result of the pandemic.

Returning to the public transit ridership level, cities across the world with higher order transit, mainly underground rail in urban settings, should carefully plot how transit ridership has changed since March 2020 and determine whether ridership levels have plateaued, as the chart above suggests for New York subway and the London Tube. If the ridership levels seem to be plateauing, incentives will be needed to promote ridership and bring back those who once rode subways and underground transit. In places like Toronto and New York, where violence on transit systems increased during the pandemic, the need will also be to make systems safer for transit users and workers.

The road to saving office real estate downtown is paved with rail tracks with higher-order transit operating on the dedicated right-of-way. Recover transit ridership levels, and you can save your downtown offices.