New York and Chicago Still Face the Loop

New York and Chicago are showing clearer signs of post-pandemic recovery, but office vacancies, hybrid work, fiscal pressure and transit dependence suggest that the “urban doom loop” has not disappeared. It has become slower, more uneven and harder to measure.

US downtowns recover unevenly after the pandemic shock

New York and Chicago look livelier than they did in the early post-pandemic years. Business districts have more activity, employers are pushing more workers back into offices and prime buildings are signing major leases again. But that does not mean America’s largest cities have fully escaped the so-called urban doom loop — a scenario in which empty offices reduce tax revenue, weaken city services, hurt transit systems and encourage residents and businesses to leave.

The term gained prominence after the pandemic, when remote work sharply reduced the daily flow of employees into central business districts. For cities with expensive real estate and large public budgets, this was never only a landlord problem. Commercial property supports a large part of the tax base, while office workers sustain restaurants, shops, transit, street-level retail and local services.

Bloomberg Opinion argued on May 28, 2026, that New York and Chicago have not yet put this risk behind them. Recent market data support a more nuanced conclusion: conditions have improved, but they have not returned to the old normal.

Manhattan is improving, but the old model is broken

New York is outperforming many US office markets. CBRE reported that Manhattan’s office availability rate fell to 15.1% in the first quarter of 2026, while net absorption reached 2.06 million square feet. Net absorption is the difference between space occupied and space vacated; a positive figure means tenants took more space than they gave back.

Colliers put Manhattan leasing volume at 11.78 million square feet in the quarter, the strongest first quarter since 2014. It said the availability rate fell to 13.7%, while the average asking rent rose to $77.55 per square foot per year.

Those figures point to recovery, but they also conceal a structural split. Demand is concentrated in newer and higher-quality buildings, especially near transit hubs and in areas where employers can offer workers better amenities. Older Class B and Class C offices, meaning mid-tier and lower-quality buildings relative to new towers, remain the most vulnerable.

The office market is no longer recovering evenly. Companies often reduce their total footprint while moving into better buildings. For downtowns, that creates a paradox: the best towers fill up while outdated properties lose tenants and value. Those weaker buildings are the main source of risk for tax bases and lenders that financed offices at pre-pandemic valuations.

Chicago remains the weaker major-market link

Chicago looks less resilient. Colliers reported that downtown office vacancy reached 24.7% in the first quarter of 2026, while total availability stood at 29.2%. Vacancy refers to space that is already empty, while availability includes space that may soon come to market.

CBRE put direct vacancy in Chicago’s central business district at 27.0% and recorded 515,176 square feet of negative net absorption in the quarter. Large move-outs included space vacated by Citadel and Boeing, adding pressure to the market. For the city, that matters not just as a leasing indicator but as a warning about the future taxable value of commercial buildings.

Chicago’s central business district faces a more difficult mix of pressures than Manhattan. Premium demand is weaker, the share of challenged older buildings is larger and city finances are already under strain. Chicago also cannot rely on the same global concentration of finance, law and technology tenants that supports New York.

There are signs of improvement: new tenants are appearing, some retail space is filling again and downtown streets are busier. But vacancy remains too high to say the crisis is over.

Hybrid work is now a permanent fiscal factor

The key post-pandemic shift is not the disappearance of offices but the way they are used. Hybrid work, where employees work from home for part of the week, has become a durable feature of corporate life. That means the old five-day office commuter flow into downtowns has not fully returned.

Kastle Systems, which tracks office attendance through building access data, has noted that occupancy varies sharply by weekday, with Tuesday typically the strongest day and Friday the weakest. That matters for cities because restaurants, cafes, transit operators and small businesses depend not on signed leases but on daily foot traffic.

Even if a company keeps its downtown address, it may use fewer floors and bring in fewer employees. For landlords, that means pressure on rents and property values. For cities, it means less street-level activity. For transit agencies, it means weaker weekday ridership.

In New York, this effect is softened by density, tourism and high-paying industries. In Chicago, downtown’s dependence on office workers makes the issue more pronounced.

Property taxes become a channel of risk

The doom loop is dangerous because of the fiscal mechanism behind it. When office buildings fall in value, city and regional governments risk collecting less property-tax revenue. Property taxes are among the most stable funding sources for schools, policing, transit, sanitation, social programmes and infrastructure.

New York is especially dependent on real estate. Figures published by the Real Estate Board of New York showed that real estate-related taxes generated $39.6 billion in fiscal 2025, accounting for nearly half of locally generated city tax revenue. Even though an industry group’s framing may reflect the interests of property owners, the scale of fiscal dependence is a central fact.

Chicago has a different but equally difficult profile. Its 2026 budget closed a projected $1.15 billion gap without raising the city’s property-tax levy. That shows limited room for manoeuvre: the city must preserve services, fund safety, transit and infrastructure, and avoid tax measures that could accelerate household or business exits.

Lower commercial property values do not always hit budgets immediately. Assessments lag, and owners can appeal valuations. That is part of the danger: fiscal pressure often appears later, when the easiest political choices are gone.

Transit remains central to the loop

Public transit is a key channel through which hybrid work affects urban economies. If ridership is lower, transit agencies collect less fare revenue. If service deteriorates because funding is tight, some riders shift to cars, taxis or remote work. That is the transit version of a doom loop.

The Metropolitan Transportation Authority, which runs the New York region’s largest transit system, had a $21.3 billion operating budget for fiscal 2026. Its revenue structure depends not only on fares and tolls but also on dedicated taxes, subsidies and contributions linked to regional economic activity. That makes the system sensitive to the city’s business cycle.

Chicago’s transit system is also under pressure, although the Chicago Transit Authority approved a balanced $2.23 billion operating budget for 2026 with no fare increases, service cuts or layoffs. That outcome reflected new state-level transit funding, but it did not erase the longer-term challenge of rebuilding ridership and confidence.

Transit also matters for real estate. Offices near reliable transit hubs recover faster, while remote or outdated buildings lose appeal. Transit and property values can reinforce each other, both in recovery and in decline.

The loop has changed rather than disappeared

It would be wrong to describe New York or Chicago as cities in free fall. New York remains a global centre for finance, law, media and technology. Manhattan is again attracting major office deals, and premium buildings have a clear advantage. Chicago remains a major business, transport and industrial hub for the Midwest.

But the new phase of risk is less dramatic than early predictions of urban collapse. It shows up in a slow redistribution of value: from old offices to new ones, from weaker districts to stronger ones, and from everyday small businesses to more concentrated premium zones.

That is an uncomfortable configuration for city budgets. The top of the market may look healthy while a large part of the office stock loses income and value. Banks, pension funds, insurers and municipal budgets may feel the consequences later, when loans are refinanced, valuations are reset and tax receipts adjust.

Office-to-housing conversions are not a quick fix

One popular answer to the office crisis is converting older buildings into housing. For New York and Chicago, the idea is attractive because both cities need more homes while parts of the office stock no longer meet tenant requirements.

But conversion is not a universal solution. Many office buildings have deep floor plates, limited natural light, complex mechanical systems or high redevelopment costs. To make projects viable, cities often need tax incentives, cheaper financing, zoning changes and infrastructure support.

Even successful conversions take years. They can help specific neighbourhoods but cannot quickly absorb millions of square feet of challenged office space. If subsidies are too generous, cities also risk shifting private-sector losses onto public budgets.

What will determine the outcome

For New York, the key indicator will be not only leasing growth in the best buildings but also the fate of older office stock. If Class B and C buildings fall sharply in value, that will hit assessments, loans and the tax base. If the city accelerates conversions, preserves transit flows and retains high-paying industries, the doom-loop risk can remain manageable.

For Chicago, the central question is whether downtown can restore a durable flow of people despite high vacancy. A weak office market, budget constraints and public concern about transit safety can reinforce each other. Even with pockets of improvement, the city must show that recovery is not confined to a few successful buildings and corridors.

Both cities are entering a new phase of urban competition. Companies no longer need to occupy the same amount of office space, workers have more flexibility and investors require higher returns for risk. That means cities must compete not only on taxes and infrastructure but also on the quality of everyday urban life.

According to experts at International Investment, the main mistake in assessing New York and Chicago is to treat the urban doom loop as a catastrophic scenario that either happened or was cancelled. In practice, the risk has become chronic: strong assets are recovering, weak buildings are losing value, transit requires support and budgets increasingly depend on how quickly cities can turn outdated business districts into mixed-use, safe and economically resilient urban centres.