American Cities Are Starting to Thrive Again. Just Not Near Office Buildings.
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American Cities Are Starting to Thrive Again. Just Not Near Office Buildings.

Neighbourhoods are benefiting from remote work

By KONRAD PUTZIER
Wed, May 31, 2023 9:20amGrey Clock 3 min

While office towers sit empty and nearby businesses struggle to pay their bills, residential neighbourhoods in America’s biggest cities are bustling again.

The pandemic and remote work have done little to dent the overall appeal of cities such as New York, Chicago and Los Angeles, foot-traffic and rent data show. Instead, the pandemic has shifted the urban centre of gravity, moving away from often sterile office districts to neighbourhoods with apartments, bars and restaurants.

“We’re now back to what cities really are—they’re not containers for working,” said Richard Florida, a specialist in city planning at the University of Toronto. “They’re places for people to live and connect with others.”

At the height of the pandemic, some analysts predicted that big cities would enter a downward spiral as remote workers sought more space and cheaper places to live. That happened to some degree early on, but it didn’t last. While big metropolitan areas lost population during the first year of the pandemic, partly because of a drop in immigration from abroad, the losses have since slowed or reversed, according to a Brookings Institution analysis of census data.

Many residential neighbourhoods benefit from remote work. As people spend more time at home, they frequent local shops, gyms and restaurants, boosting the economy of places such as Brooklyn, N.Y.’s Ditmas Park and Williamsburg, as well as Washington, D.C.’s Georgetown.

Data from Placer.ai, which tracks people’s movements based on cellphone usage, shows a stark divide between office and residential districts. In Downtown Los Angeles, visitor foot traffic is 30.7% below pre pandemic levels, while Downtown Chicago’s visitor foot traffic is 27.2% lower. By contrast, in the residential areas of South Glendale and Highland Park near Los Angeles and in Chicago’s residential Logan Square neighbourhood, visitor foot traffic has been rising and is nearly back to pre pandemic levels.

Food delivery also illustrates the shift. In 2019, almost 95% of New York City corporate lunch orders came from the city’s business district, according to food-order app Grubhub. This year, it is down to around 85%. In Chicago, the central business district accounted for more than 80% of corporate lunch orders in 2019 but just over 60% this year.

Rent data, meanwhile, attests to strong demand for city living. In Manhattan’s Greenwich Village, median housing rent was 30% higher in April 2023 than in April 2019, according to Jonathan Miller, chief executive of real-estate-appraisal firm Miller Samuel. In the Brentwood neighbourhood of Los Angeles, the median rent is up 63%.

Big cities still face serious challenges. Vacant office buildings leave downtown shops and restaurants with too few customers, while falling commercial building values threaten property-tax revenues.

“The increased vibrancy of great urban neighbourhoods will never be enough to offset the decline in property-tax revenues caused by remote work and the falling values of commercial office buildings,” Florida said.

Housing shortages have pushed up rents. In the long run, replacing offices with apartments can help revitalise urban centres, but that will take time. Conversions are also often tricky and expensive. Crime is up in many places. San Francisco in particular has been slower to recover and its retail has come under pressure.

Still, anyone walking through New York’s Jackson Heights or Silver Lake in Los Angeles looking for a deserted hellscape will be disappointed.

In Manhattan, the pandemic ignited a retail renaissance in the Soho neighbourhood, with availability there now at its lowest level since 2014, according to real-estate services firm Cushman & Wakefield.

“Before the pandemic there was a disconnect between landlord expectations and what tenants could pay,” said Steven Soutendijk, executive managing director for the firm’s retail division. “Covid sort of shook that up a little bit, in a good way.”

Andrea Loscalzo, owner of the Italian restaurant Salumeria Rosi in Manhattan’s Upper West Side, said his eatery is as busy as before the pandemic. Many regulars left the neighbourhood and never returned, but young professionals in their 30s and 40s moved in to replace them, he said.

“Even as families decamp, New York’s magnetic pull on the young and the talented is now more than ever,” Florida said.

In Chicago’s central business district, retail vacancy rose to a record high of 28% last year compared with about 15% in 2019, according to Stone Real Estate, a local brokerage. Crime in the city remains a concern, and in April, Walmart said it would close four of its eight locations in Chicago after annual losses nearly doubled in five years.

The city’s residential and tourist neighbourhoods are performing considerably better. In River North, which has a mixture of residential, office and hotels, retail vacancy dropped by more than 2 percentage points, driven largely by the strength of its restaurants, said John Vance, principal at Stone Real Estate.

“The city blocked off some streets to traffic so we could have expanded outdoor dining,” Vance said. “River North feels vibrant.”

Lakeview, a neighbourhood within walking distance of Lake Michigan and Wrigley Field, is bustling with young residents, families and Cubs fans, said resident Naomi Polinsky. Its restaurants and bars were packed on a recent Saturday night.

“We walked next door to the sports bar, and there was not a single place to sit. We walked across the street to the wine bar, completely crowded,” she said.



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Why Prices of the World’s Most Expensive Handbags Keep Rising

Designers are charging more for their most recognisable bags to maintain the appearance of exclusivity as the industry balloons

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The price of a basic Hermès Birkin handbag has jumped $1,000. This first-world problem for fashionistas is a sign that luxury brands are playing harder to get with their most sought-after products.

Hermès recently raised the cost of a basic Birkin 25-centimeter handbag in its U.S. stores by 10% to $11,400 before sales tax, according to data from luxury handbag forum PurseBop. Rarer Birkins made with exotic skins such as crocodile have jumped more than 20%. The Paris brand says it only increases prices to offset higher manufacturing costs, but this year’s increase is its largest in at least a decade.

The brand may feel under pressure to defend its reputation as the maker of the world’s most expensive handbags. The “Birkin premium”—the price difference between the Hermès bag and its closest competitor , the Chanel Classic Flap in medium—shrank from 70% in 2019 to 2% last year, according to PurseBop founder Monika Arora. Privately owned Chanel has jacked up the price of its most popular handbag by 75% since before the pandemic.

Eye-watering price increases on luxury brands’ benchmark products are a wider trend. Prada ’s Galleria bag will set shoppers back a cool $4,600—85% more than in 2019, according to the Wayback Machine internet archive. Christian Dior ’s Lady Dior bag and the Louis Vuitton Neverfull are both 45% more expensive, PurseBop data show.

With the U.S. consumer-price index up a fifth since 2019, luxury brands do need to offset higher wage and materials costs. But the inflation-beating increases are also a way to manage the challenge presented by their own success: how to maintain an aura of exclusivity at the same time as strong sales.

Luxury brands have grown enormously in recent years, helped by the Covid-19 lockdowns, when consumers had fewer outlets for spending. LVMH ’s fashion and leather goods division alone has almost doubled in size since 2019, with €42.2 billion in sales last year, equivalent to $45.8 billion at current exchange rates. Gucci, Chanel and Hermès all make more than $10 billion in sales a year. One way to avoid overexposure is to sell fewer items at much higher prices.

Many aspirational shoppers can no longer afford the handbags, but luxury brands can’t risk alienating them altogether. This may explain why labels such as Hermès and Prada have launched makeup lines and Gucci’s owner Kering is pushing deeper into eyewear. These cheaper categories can be a kind of consolation prize. They can also be sold in the tens of millions without saturating the market.

“Cosmetics are invisible—unless you catch someone applying lipstick and see the logo, you can’t tell the brand,” says Luca Solca, luxury analyst at Bernstein.

Most of the luxury industry’s growth in 2024 will come from price increases. Sales are expected to rise by 7% this year, according to Bernstein estimates, even as brands only sell 1% to 2% more stuff.

Limiting volume growth this way only works if a brand is so popular that shoppers won’t balk at climbing prices and defect to another label. Some companies may have pushed prices beyond what consumers think they are worth. Sales of Prada’s handbags rose a meagre 1% in its last quarter and the group’s cheaper sister label Miu Miu is growing faster.

Ramping up prices can invite unflattering comparisons. At more than $2,000, Burberry ’s small Lola bag is around 40% more expensive today than it was a few years ago. Luxury shoppers may decide that tried and tested styles such as Louis Vuitton’s Neverfull bag, which is now a little cheaper than the Burberry bag, are a better buy—especially as Louis Vuitton bags hold their value better in the resale market.

Aggressive price increases can also drive shoppers to secondhand websites. If a barely used Prada Galleria bag in excellent condition can be picked up for $1,500 on luxury resale website The Real Real, it is less appealing to pay three times that amount for the bag brand new.

The strategy won’t help everyone, but for the best luxury brands, stretching the price spectrum can keep the risks of growth in check.

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