Reimagining Urban Real Estate Portfolios
Unlocking Value Across the Built Environment
Reimagining cities could unlock $120+ billion in U.S. CRE value. In Reimagining Cities: Disrupting the Urban Doom Loop, Cushman & Wakefield and Places Platform, LLC identified a clear north star: the optimal mix of real estate diversity that drives both higher real estate values (on a price per square foot basis) and stronger economic growth (GDP). We called this the “optimal portfolio” for the built environment—providing guidance for the ideal market balance across Live, Work and Play real estate. This approach aims to simultaneously maximize benefits for both real estate markets and local communities alike.
However, not all walkable urban places (WalkUPs) studied in the report suffered from a misallocated portfolio. In fact, the problem was most pronounced in Downtown WalkUPs, where portfolio theory has been fundamentally disregarded. Downtowns across the 15 cities studied in the report had an average of 70% of the entire real estate base in some form of Work (office) product, with some cities reaching the high 80% range. In the wake of the pandemic, this reliance on office spaces has become an acute issue, with Downtown vacancies doubling to 26.3%. This imbalance is impacting real estate investors, lenders, city officials and surrounding communities, creating widespread challenges.
The Reimagining Cities report was a first of its kind analysis that comprehensively quantified what share of the built environment was indeed office. Yes, many knew and still know that there is too much office space in our downtowns, but it has primarily been a “feeling” and an axiom without data to back it. Now we have the data.
And, while it is well understood that converting office buildings to other uses is difficult (to put it mildly), it is vital that we understand how much additional value could be unlocked by doing so. Is it worth it? By examining this question, stakeholders—including residents, CRE investors, businesses, civic leaders and government officials—can make better decisions around how to direct limited resources to induce change. Gaining clarity on this issue also reinforces the urgency of taking action now.
How much value can be unlocked?
The real answers to these questions are so complicated that they are essentially impossible to answer precisely. However, we can create reasonable estimates of potential value based on the optimal real estate mix and the distribution of real estate prices across the quality spectrum.
First, we know that, on average, Downtown WalkUPs are 70% Work and that they should be closer to 42%, so reducing the average market share of Work by 30 percentage points would get them closer to optimal. However, as mentioned before, in some markets like Miami, its Downtown Work comprised a market share of only 44% whereas in San Francisco it was 87%. So, required adjustments in Work share vary by city. Reimagining Cities revealed that greater office market share was associated with sharper valuation declines, which will provide the basis for more attractive acquisition costs—a key factor that will drive the conversion and “reimagining” (repositioning) process in cities with a higher Work share.
Second, we must include a control for quality since it is well known that higher-quality office is generally not the problem. It is lower-quality offices (whether or not they are acknowledged as such by current owners) that are more likely to make the economics of a conversion work out. Further, few investors and developers are going to invest in a conversion only to bring a hotel, multifamily property or other use case to the market at below market Class A averages. For instance, the costs associated with financing, planning and redevelopment make it unfeasible to convert higher-quality office spaces into Class C multifamily housing.
We estimated a few possible outcomes that illustrate a range of possibilities, but all scenarios result in substantial value accretion to real estate markets in the 15 Downtowns we studied. Because many non-Downtown WalkUPs were already largely within the optimal portfolio share ranges,1 shifting the real estate composition in them could lead to value destruction, unless conversion/repositioning is highly targeted.
These estimates, while not perfect, suggest that a substantial opportunity exists for those willing to take the risk of converting select assets to their highest and best use. We think the first estimate provides the most reasonable benchmark for the potential value creation. The combination of the scenarios points to the fact that replacing lower-quality and less desirable office is key to unlocking additional value. Our estimates do not include the additional benefits that may accrue to the local economy—such as increased foot traffic and neighborhood vitality, improved sales tax revenue, lower crime, etc.—which were shown to be correlated with an optimal real estate portfolio.
What is the urgency?
The sky is not falling, but the absence of a financial cliff in public budgets or distressed commercial real estate markets doesn’t mean all challenges have been resolved. For cities, property taxes provide an important source of revenue which in turn funds public safety, public health, social services, education, infrastructure and many other social priorities. However, the reliance on property taxes varies by city, and so does the underlying reliance on multifamily and commercial property tax revenue (versus for sale housing in the single-family and condo markets). As a result, the urgency to address this reliance is unequal across cities.2
The current situation is more akin to a slow burn than an explosion. In general, assessed real estate values are declining gradually due to measurement methods that rely on lagged data from net operating income rather than real-time measures of occupancy or transaction values. Meanwhile, a growing number of property tax appeals may accelerate some recognition of value destruction. The Tax Policy Center estimates that the median city could see a revenue shortfall of 2.5% to 3.5%.3 While these percentages appear small, they equate to hundreds of millions of dollars.
- Boston: $1.7 billion deficit projected over next five fiscal years, primarily due to declining office values
- Chicago: $1.2 billion deficit projected for fiscal year 2026 and $1.3 billion deficit projected for fiscal year 2027
- Los Angeles: $1 billion deficit projected for upcoming fiscal year
- New York City: $4.6 to $10.6 billion deficit projected for fiscal year 2027, $5.8 to $13 billion deficit projected for fiscal year 2028
- San Francisco: $800 million to $1.5 billion deficit projected in the coming fiscal years, reaching $1.9 to $2.6 billion if current trends continue
- Washington, DC: $1 billion deficit projected over the next three fiscal years ($342 million per year)
Further, in response to declining property tax revenues, some cities are responding with tax rate increases—such as Boston, Minneapolis, Denver and Nashville—or considering such measures, as in Chicago and Austin. These changes could place additional strain on property owners, particularly those managing lower-quality office buildings or retail spaces that had historically relied on commuter foot traffic. In some cases, this financial pressure may even lead to tax lien sales and the risk of foreclosure.
Besides the effects on property tax revenues, reduced foot traffic brings its own set of challenges. According to Reimagining Cities, much attention has been paid to return-to-office workers and commuters, who actually make up only one-fifth of foot traffic. Meanwhile, residents account for 13%, and visitors make up a significant 67%. This is consistent with updated analysis External Link from Center City Philadelphia, which has led research on the foot traffic recoveries of 26 Downtowns across the nation. In 2025, resident foot traffic is up 23% across the 15 Downtowns Cushman & Wakefield/Places Platform, LLC studied versus the 2019 level. However, visitor foot traffic and commuter foot traffic remain 18% and 34% below 2019 levels. The effects can be seen beyond the office sector, in retail real estate in CBDs and retail sales.
Since 2019, retail vacancy has generally increased in CBD submarkets and tightened in suburban submarkets in the 15 cities included in the Reimagining Cities analysis. In fact, CBD retail vacancy expanded in two-thirds of the 15 cities, led by 500+ basis point increases in Seattle, Chicago and Dallas. Conversely, suburban retail vacancy grew in only three of the 15 cities, and even those submarkets remain quite tight: Los Angeles (6.1%), San Francisco (5.3%) and Seattle (3.4%). Less commuting and lower foot traffic have increased suburban retail demand and hampered retail activity in Downtowns.
Reimagining real estate is a process, and it is underway to be sure. Conversions are set to reach a new peak in 2025 External Link, and office-to-residential conversions dominate the volume, accounting for 42% of overall activity. Further, changes to office product are disproportionately targeted in CBDs, whether it be a conversion or a significant renovation. Data from Cushman & Wakefield indicate that such changes4 in CBDs have reached 2.8% and 3.1% of stock in 2023 and 2024, respectively, up from 0.5% in 2019. If the Q1 2025 pace is kept for the year, then 2025 could reach 3.5%, a new record. The respective shares for suburban office are 1.1% and 0.7% in 2023 and 2024 versus 0.1% in 2019. The pace appears to have lost momentum in 2025, as the annualized pace may only reach 0.5% if sustained at its current trajectory.
Major cities like New York City, Washington, DC, Los Angeles, and Chicago consistently lead the way, driven in part by the influence of tax incentives and other benefits. As the tax situation becomes more challenging, questions around what sort of investments the public versus private sector should make will arise. For example, cities need to consider transportation, green spaces and parks, crime, education and more to attract diverse, multigenerational residents back to the Downtown. With limited dollars, how much should be allocated to real estate? What form a subsidy or tax incentive takes can also have effects on uptake and potential impact. It is promising that many cities are “on the move” but the other reality is that the current pace of change is too slow. To make the kind of portfolio shifts that would lead to more optimal real estate and economic outcomes across Downtowns, a faster tempo is needed.
What’s the urgency? Cities have limited fiscal space and resources, but it is clear that the right incentives and policy tools (including non-monetary regulation like zoning and permitting) can induce change. Real estate not only contributes to the tax base (and acts to subsidize the city budget), but it also facilitates economic growth and vitality. By acting now to rebalance the real estate portfolio within the built environment—and in Downtowns specifically—all stakeholders can usher in a new era of vitality for cities.
1 The majority of non-Downtown WalkUPs (Downtown Adjacent, Urban Commercial and Urban Universities are the other types of WalkUPs in our cities) do not violate portfolio theory, primarily since many of these WalkUPs are 21st century development when mixed-uses in walkable urban places were known to work better than office-centric Downtowns or CBDs.
2 Regardless of the overall tax profile on property taxes, Reimagining Cities showed that Downtown WalkUPs and WalkUPs generally provide much more property tax revenue versus their concomitant shares of land, GDP and even real estate stock or valuation. WalkUPs represent 3% of the land mass of the 15 cities studied, but 25% of real estate stock/valuation, 37% of property tax revenue and 57% of GDP.
3 Source: The Tax Policy Center
4 Demolitions, significant renovations/repositionings, and conversions of office buildings.
