The findings of “The Economic Impact of COVID on the Downtown” are summarized here, The entire report can be found here.
THE IMPACT OF COVID ON JOBS AND REDUCED CONTRIBUTION OF DOWNTOWN TO GDP
If COVID-related restrictions persist, Toronto’s GDP could decline by as much as 20%.
Although 70% of wealth-creating and institutional jobs can be performed remotely, the 190,000 jobs that require face-to-face contact with customers or cannot be performed remotely are at significant short to mid term risk.
More than 120,000 jobs are largely dependent for their survival on a return to “normal.” In total, more than 6,750 establishments – 43% of all establishments downtown – are at risk and these account for almost 9% of all businesses in the City.
81,000 jobs in small/medium-sized businesses are poorly suited to surviving the second wave of the pandemic.
Although small/medium-sized businesses account for just over 5% of the downtown’s total GDP, they represent more than 25% of all establishments.
Salaried, high-paying jobs in the wealth-creating and institutional sectors are not at risk, the downtown economy is nevertheless being damaged by the absence of office employees still working remotely.
THE ‘DEMAND-LED’ RECESSION CAUSED BY COVID WILL BE K-SHAPED, PLACING THE BURDEN OF THE ECONOMIC DOWNTURN ON THE SHOULDERS OF THE LOWEST-PAID WORKERS
A significant percentage of economic demand in downtown has disappeared as a result of COVID, resulting in a ‘demand-led recession.’
More than 400,000 office workers continue to work remotely, with massive impacts on downtown’s economic ecosystem of small and medium-sized businesses that depends on their spending.
With the border closed and other travel restrictions, tourism, other visitation and nearly all business travel has halted, which before COVID delivered 28M visits annually, removing up to 45% of demand.
Almost a quarter million post-secondary students are now studying on-line, further reducing the daytime population of downtown.
Under a worst-case scenario, the GDP of downtown could contract by 20%.
FACTORS AFFECTING TORONTO’S ‘REPUTATIONAL RISK’ RANGE FROM LOST MOMENTUM FROM TOURISM TO GROWING COMPLAINTS ABOUT PETTY CRIME ON SUDDENLY EMPTY STREETS
Downtown Toronto’s attractiveness as a destination for business travel, domestic and international tourism could be at long-term risk if current conditions persist.
The absence of office workers, tourists and post-secondary students adds up to a dramatic reduction in footfall on the streets of downtown.
The attractiveness of the downtown is significantly related to the amenities and activities that are available. Areas such as the Bloor-Yorkville BIA, the Entertainment District BIA, the Downtown Yonge BIA, the Waterfront BIA, the St. Lawrence Market Neighborhood BIA and the Financial District BIA are “live, work, play, learn, and shop” neighborhoods. The very activities that have made these destinations attractive, however, are now profoundly undermined by the restrictions required by COVID.
Cultural activities, hospitality and the tourism sectors are important attributes of the fabric of these neighborhoods and critical to their reputational attractiveness. This vibrancy also feeds into the attractiveness and desirability to base corporate HQs in the Financial District BIA.
The loss of both the physical presence in terms of foot traffic and physical spending on goods, food and drink etc. by so many tourists, students and non-resident workers underscores how critically important these customers are to the viability and character of downtown.
RISKS TO GOVERNMENT REVENUES ARE MANAGEABLE, WITH THE SIGNIFICANT EXCEPTION OF THE LOSS OF TTC REVENUE OF MORE THAN HALF A BILLION DOLLARS FOR THE CURRENT BUDGET YEAR.
The fact that so much of the high-value commercial real estate in downtown is owned by pension funds and other investors with long-term financial goals suggests that property tax revenues from commercial real estate will not be unduly affected by COVID restrictions.
The biggest revenue challenge confronting the City is transit fare revenues, which should prudently be assumed to experience a 50% reduction – $600 million – annual challenge through the medium-term.
Assuming a $7.8 billion GDP reduction, the assumed annual Provincial revenue loss would be approximately $1.1 billion in foregone tax revenues from all sources and the Federal loss would be approximately $1.6 billion in foregone tax revenues from all sources. This risk would increase over the medium-term.
DOWNTOWN TORONTO’S FUNDAMENTALS ARE STRONG AND RESILIENT BUT THE AREA IS AN ECONOMIC ECOSYSTEM THAT NEEDS ALL ITS MOVING PARTS TO FUNCTION IN HARMONY
With just over 273,000 residents, Downtown Toronto now accounts for just over 9% of the City’s population and has grown three times faster than the rest of the City since 2014.
The quality of life in neighbourhoods throughout downtown has been immeasurably improved in recent decades with the rapid growth in housing but if younger workers are denied opportunities for networking or access to downtown’s nightlife, their commitment to living in expensive rental accommodation may be called into question.
The raison d’etre for many to live downtown is linked to a lifestyle snuffed out by COVID. This has led to a softening of the condo-based rental market, which accounts for 61% of all rentals.
Many younger workers, including ‘gig’ workers and students, with jobs in the service sector that are at risk, live downtown, and could be forced to leave.
Just under two-thirds of the nearly 155,000 households downtown live in rental units. Economic pressures and the unique demographics of the downtown population combined suggest that more than one-third of these households may face economic pressures in the medium term that could lead to re-location out of the Downtown.
Restoring consumer and commuter confidence is key to downtown’s resurgence.
The downtown economy is well suited, at the aggregate level, to survive COVID related restrictions. This, however, can obscure the very significant risk to many employees and businesses.
Links to Articles of Interest
Click to read - New York transit earns a reprieve that protects levels of service
Click to read - Restoring faith in downtowns begins with getting office workers back
Click to read - Colliers reports documents downside to working from home over the long-term
Click to read - Tough times for transit in the U.S. as operators plead for bail outs
Click to read - Experts disagree on the future of the office
Click to read - Global survey on the future of office space
Click to read - Important research suggests that transit not a driver of disease
Click to read - More caution from U.S. real estate execs on the return to the office
Click to read - Is New York entering a down cycle inspired by COVID?