5 ms·

The vacancy rate of offices looks low because the big tech companies are still "occupying" them, but if go into many of them and they still look like ghost town

The vacancy rate of offices looks low because the big tech companies are still "occupying" them, but if go into many of them and they still look like ghost towns. Much more that offices in other locations. This feels unsustainable.

lazide 4y ago
It definitely is unsustainable. A lot of wil-e-coyote running off the cliff type of stuff going on. And hey, maybe some places will connect with a cliff on the other side. But I wouldn’t want to be in the commercial real estate space right now. About 90% of every office and co-working space is empty now, all day, every day here. It’s only slightly busier than during Covid when it was 99%. Light industrial and retail (strip mall type stuff) is doing well and super busy however.
- toomuchtodo 4y ago
  Colloquially this was known as “extend and pretend” during the GFC.
- macNchz 4y ago
  Here in NYC I've been to a couple of coworking spaces in the past 6 months and was surprised to find them downright bustling, I had trouble finding a quiet space to work. There are definitely serious problems in commercial real estate here, but the coworking situation was unexpected to me.
  - blevin 4y ago
    One succesful mode of applying coworking spaces seems to be less for heads-down focus time and more for periodic get-together time for teams. These spaces seem not very good as a full-time micro-office due to the noise issues you mention... but as a place to go whiteboard or empathize they seem quite useful. Bonus if there are nearby interesting excursion options, food courts, recreation, etc. and multiple easy-ish commute options. Part of economic development seems to be exploring options for how to dis- and re-aggregate services like this, providing more and smaller transitions across the tradeoff landscape.
    - lazide 4y ago
      Makes sense. I'm in the middle of finding a standalone office so I can do actual meetings and be productive, but it's tempting to keep the co-working space for exactly what you describe. One day here, another day there type of thing for when those things are helpful.
  - bart_spoon 4y ago
    The thing about coworking is that, for employees at least, it is an actual solution to some of the problems with remote and in-office work, as opposed to the "hybrid" model which manages to be the worst of all worlds. With coworking, you can still have more flexibility to live where you'd like as opposed to being bound to a specific office and the often high COL and long commutes that come with it. Coworking allows one to still separate their home from their office, which some prefer, and it also allows employees to get out of the house and engage with others, socialize, and engage with their community/city, but you aren't forced to do this at your work which will always be tainted by the financial implications of the employee/employer relationship that loom over it all.
  - dehrmann 4y ago
    My take is that people move to NYC to be in NYC, so they're more likely to want these interactions. Also, their apartments are tiny.
- ghaff 4y ago
  A business writer friend of mine told me a month or so ago that, based on a sampling of key swipes, office occupancy is down about a third compared to pre-pandemic although I'm sure it varies a lot.
  - 0cf8612b2e1e 4y ago
    About a third or to a third? Regardless, at my place of work ("hybrid"), I would be shocked if badge swipes were 10% of pre-pandemic levels.
    - ghaff 4y ago
      I can't find the reference but, as I recall it was a drop from 65% pre-pandemic (that may seem low because pre-pandemic a lot of people still traveled or otherwise weren't in the office on a typical day) to around 40% these days. I'm told my workplace is quite a bit lower as well.
  - gumby 4y ago
    From the article this appears to be the case for san francisco (20+% vacancy) but not for Silicon Valley.
    - ghaff 4y ago
      Although commercial occupancy rates are a different measurement from how many seats are filled on an average day.
      - lazide 4y ago
        Yeah, re: my 'lights are on, but nobody home' anecdote from the peninsula - I'm specifically referring to butts in seats. Said seats are currently very relaxed and well aired out compared to typical.
- gregmac 4y ago
  My office (near Toronto) was up for lease renewal about 1.5 years ago. Pre-pandemic about 50% of people were working from home at least some of the time, and by 2021 there were maybe 2-3 people in the office regularly (in a space that could easily have 45). The company was debating what to do but did want some physical space, and possibly would have just stayed considering the investment in build-out, networking (including at least a rack of internal servers and other infrastructure, with dedicated fibre to other company datacenters), video conference rooms, etc. What I heard was the building was trying to nearly double the rent, so this made a pretty easy decision and the place was closed. Servers were migrated to other locations, and everything else was shipped to other offices, given to employees, sold or scrapped. Now it's 6 months later, and last time I drove by it still has our old sign up, and I can see online the entire space is still available to lease. Seems silly to risk it in the current market and take $0 instead of keep a quiet, established tenant.. but what do I know.
  - lazide 4y ago
    Some of this may be due to incentives in the way property management and owners value commercial property and calculate cash flows and fees. In many cases, it can make more sense (to some folks) having a vacant property at a nominally high rent (look, we could make this much from this property, hence it’s worth x multiple!) then admitting that is not likely for the foreseeable future (oh shit, this property is now only capable of producing 80% of x, write downs and angry investors incoming). It sounds weird, but the wil-e-coyote analogy is remarkably apt - in the cartoons, as long as he doesn’t look down, he keeps going just fine!
slaw 4y ago
There are malls empty for 20 years, offices could be also empty for 20 years.
- modeless 4y ago
  Those malls don't have paying tenants while they're empty though. Big tech companies aren't going to keep paying leases they don't need forever.
  - KerrAvon 4y ago
    They are if they have contracts specifying that the must do that. Or possibly can negotiate a payout, but I imagine it won’t be cheap.
    - ffggffggj 4y ago
      Musk is doing this now by holding up a refinancing of Twitter’s building by defaulting on the rent. Anyone with a big enough war chest can just stop paying, drag it out in court, and wait the owners out. And tech companies have some of the biggest war chests.
      - kibwen 4y ago
        > And tech companies have some of the biggest war chests. Most tech companies do, but if reports of Twitter's finances are to be believed, they do not.
- gitfan86 4y ago
  That is a good point. The people who invested in long term leases in the late 90s in malls went bankrupt but the malls mostly stayed around. I assume the same thing will happen with office space. Demolishing the building is expensive, might as well keep the lights on and wait to see if someone wants the space for offices or storage or whatever.
wing-_-nuts 4y ago
Good. Maybe we can mass retrofit old office space into new housing. I know there are issues with office buildings not having the electricity and plumbing or lighting for proper residential, but I'm sure there are a lot of budding architects working on the problem. It would be great for cities if we had a massive influx of relatively affordable housing.
- nerdponx 4y ago
  It's ridiculous to even consider this in New York, where they could have just been building normal apartments instead of luxury condo towers for the last 10 years.
  - bcrosby95 4y ago
    Nah, gotta create more piggy banks for the billionaire class.
    - kibwen 4y ago
      This doesn't deserve to be downvoted, it is a perfectly apt description of many of NYC's newest skyscrapers.
  - asdajksah2123 4y ago
    What's the difference between "normal apartments" and "luxury condo towers"?
    - nerdponx 4y ago
      Price, mostly. Luxury amenities are a consequence thereof. However you can't just blame it on demand. These are $16 million condos we are talking about. Functionally they are entirely different goods from apartments intended to be inhabited as a primary residence by people who are not extravagantly wealthy. Moreover, vacancy rates for luxury apartments were high before Covid, and remain high now, even while the rest of the city continues to deal with brutally low vacancy rates in all other housing categories. So the situation is a little more subtle than "low supply, therefore high prices" and warrants further scrutiny.
shostack 4y ago
How has the commercial office space market been fairing? What's the play if one thinks it will crater?

lazide 4y ago

It definitely is unsustainable. A lot of wil-e-coyote running off the cliff type of stuff going on. And hey, maybe some places will connect with a cliff on the other side. But I wouldn’t want to be in the commercial real estate space right now. About 90% of every office and co-working space is empty now, all day, every day here. It’s only slightly busier than during Covid when it was 99%. Light industrial and retail (strip mall type stuff) is doing well and super busy however.

toomuchtodo 4y ago
Colloquially this was known as “extend and pretend” during the GFC.
macNchz 4y ago
Here in NYC I've been to a couple of coworking spaces in the past 6 months and was surprised to find them downright bustling, I had trouble finding a quiet space to work. There are definitely serious problems in commercial real estate here, but the coworking situation was unexpected to me.
- blevin 4y ago
  One succesful mode of applying coworking spaces seems to be less for heads-down focus time and more for periodic get-together time for teams. These spaces seem not very good as a full-time micro-office due to the noise issues you mention... but as a place to go whiteboard or empathize they seem quite useful. Bonus if there are nearby interesting excursion options, food courts, recreation, etc. and multiple easy-ish commute options. Part of economic development seems to be exploring options for how to dis- and re-aggregate services like this, providing more and smaller transitions across the tradeoff landscape.
  - lazide 4y ago
    Makes sense. I'm in the middle of finding a standalone office so I can do actual meetings and be productive, but it's tempting to keep the co-working space for exactly what you describe. One day here, another day there type of thing for when those things are helpful.
- bart_spoon 4y ago
  The thing about coworking is that, for employees at least, it is an actual solution to some of the problems with remote and in-office work, as opposed to the "hybrid" model which manages to be the worst of all worlds. With coworking, you can still have more flexibility to live where you'd like as opposed to being bound to a specific office and the often high COL and long commutes that come with it. Coworking allows one to still separate their home from their office, which some prefer, and it also allows employees to get out of the house and engage with others, socialize, and engage with their community/city, but you aren't forced to do this at your work which will always be tainted by the financial implications of the employee/employer relationship that loom over it all.
- dehrmann 4y ago
  My take is that people move to NYC to be in NYC, so they're more likely to want these interactions. Also, their apartments are tiny.
ghaff 4y ago
A business writer friend of mine told me a month or so ago that, based on a sampling of key swipes, office occupancy is down about a third compared to pre-pandemic although I'm sure it varies a lot.
- 0cf8612b2e1e 4y ago
  About a third or to a third? Regardless, at my place of work ("hybrid"), I would be shocked if badge swipes were 10% of pre-pandemic levels.
  - ghaff 4y ago
    I can't find the reference but, as I recall it was a drop from 65% pre-pandemic (that may seem low because pre-pandemic a lot of people still traveled or otherwise weren't in the office on a typical day) to around 40% these days. I'm told my workplace is quite a bit lower as well.
- gumby 4y ago
  From the article this appears to be the case for san francisco (20+% vacancy) but not for Silicon Valley.
  - ghaff 4y ago
    Although commercial occupancy rates are a different measurement from how many seats are filled on an average day.
    - lazide 4y ago
      Yeah, re: my 'lights are on, but nobody home' anecdote from the peninsula - I'm specifically referring to butts in seats. Said seats are currently very relaxed and well aired out compared to typical.
gregmac 4y ago
My office (near Toronto) was up for lease renewal about 1.5 years ago. Pre-pandemic about 50% of people were working from home at least some of the time, and by 2021 there were maybe 2-3 people in the office regularly (in a space that could easily have 45). The company was debating what to do but did want some physical space, and possibly would have just stayed considering the investment in build-out, networking (including at least a rack of internal servers and other infrastructure, with dedicated fibre to other company datacenters), video conference rooms, etc. What I heard was the building was trying to nearly double the rent, so this made a pretty easy decision and the place was closed. Servers were migrated to other locations, and everything else was shipped to other offices, given to employees, sold or scrapped. Now it's 6 months later, and last time I drove by it still has our old sign up, and I can see online the entire space is still available to lease. Seems silly to risk it in the current market and take $0 instead of keep a quiet, established tenant.. but what do I know.
- lazide 4y ago
  Some of this may be due to incentives in the way property management and owners value commercial property and calculate cash flows and fees. In many cases, it can make more sense (to some folks) having a vacant property at a nominally high rent (look, we could make this much from this property, hence it’s worth x multiple!) then admitting that is not likely for the foreseeable future (oh shit, this property is now only capable of producing 80% of x, write downs and angry investors incoming). It sounds weird, but the wil-e-coyote analogy is remarkably apt - in the cartoons, as long as he doesn’t look down, he keeps going just fine!

slaw 4y ago

There are malls empty for 20 years, offices could be also empty for 20 years.

modeless 4y ago
Those malls don't have paying tenants while they're empty though. Big tech companies aren't going to keep paying leases they don't need forever.
- KerrAvon 4y ago
  They are if they have contracts specifying that the must do that. Or possibly can negotiate a payout, but I imagine it won’t be cheap.
  - ffggffggj 4y ago
    Musk is doing this now by holding up a refinancing of Twitter’s building by defaulting on the rent. Anyone with a big enough war chest can just stop paying, drag it out in court, and wait the owners out. And tech companies have some of the biggest war chests.
    - kibwen 4y ago
      > And tech companies have some of the biggest war chests. Most tech companies do, but if reports of Twitter's finances are to be believed, they do not.
gitfan86 4y ago
That is a good point. The people who invested in long term leases in the late 90s in malls went bankrupt but the malls mostly stayed around. I assume the same thing will happen with office space. Demolishing the building is expensive, might as well keep the lights on and wait to see if someone wants the space for offices or storage or whatever.

wing-_-nuts 4y ago

Good. Maybe we can mass retrofit old office space into new housing. I know there are issues with office buildings not having the electricity and plumbing or lighting for proper residential, but I'm sure there are a lot of budding architects working on the problem. It would be great for cities if we had a massive influx of relatively affordable housing.

nerdponx 4y ago
It's ridiculous to even consider this in New York, where they could have just been building normal apartments instead of luxury condo towers for the last 10 years.
- bcrosby95 4y ago
  Nah, gotta create more piggy banks for the billionaire class.
  - kibwen 4y ago
    This doesn't deserve to be downvoted, it is a perfectly apt description of many of NYC's newest skyscrapers.
- asdajksah2123 4y ago
  What's the difference between "normal apartments" and "luxury condo towers"?
  - nerdponx 4y ago
    Price, mostly. Luxury amenities are a consequence thereof. However you can't just blame it on demand. These are $16 million condos we are talking about. Functionally they are entirely different goods from apartments intended to be inhabited as a primary residence by people who are not extravagantly wealthy. Moreover, vacancy rates for luxury apartments were high before Covid, and remain high now, even while the rest of the city continues to deal with brutally low vacancy rates in all other housing categories. So the situation is a little more subtle than "low supply, therefore high prices" and warrants further scrutiny.

shostack 4y ago

How has the commercial office space market been fairing? What's the play if one thinks it will crater?