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Remote work is starting to hit office rents
- toomuchtodo 4y ago> Small and midsized banks (those not among the top 25) currently hold 67.2% of all outstanding commercial real estate loans, Axios recently reported. https://www.axios.com/2023/03/21/small-bank-struggles-could-hit-the-real-estate-market-hard https://www.axios.com/2023/03/21/small-bank-struggles-could-...
- wwweston 4y agoFrom what I've heard, certain real estate enterprises including a substantial portion of commercial real estate can get financing on their nominal asking rent, whether or not they actually have tenants paying that rent. I'd imagine these enterprises still need to find a way to make their payments on any related loans, but one wonders what happens to banking revenue if a bunch of them get caught in the same crunch.
- onlyrealcuzzo 4y ago> I'd imagine these enterprises still need to find a way to make their payments on any related loans, but one wonders what happens to banking revenue if a bunch of them get caught in the same crunch. I imagine the government will bail out commercial landlords.
- chii 4y ago> I imagine the government will bail out commercial landlords. That hasnt happened before, why would it start now?
- justinclift 4y agoThe government has developed a reputation?
- xp84 4y agoArguably, all the many useful real-estate-specific tools those investors have at their disposal to advantage themselves in the tax and accounting systems (a certain former prez's own dealings is an ok example) already amounts to a rolling permanent bailout that will no doubt cushion their losses without the government even needing to act.
- smt88 4y ago> commercial landlords A huge number of these are things like pension funds, unfortunately.
- dllthomas 4y agoI have heard that, but I am skeptical. Who (... with money to lend) would be stupid enough to extend credit based on that? There has to be more to the story, if it's not fabrication.
- tejohnso 4y agoMaybe I'm missing something but weren't there plenty of people "stupid" enough to invest in junk mortgage loans? So many that it ended up causing a crisis?
- lotsofpulp 4y agoIn that situation, everyone knew they were junk, but the ratings agencies gave them safe ratings when mixed in with others, and so “people” had plausible deniability to pass them off onto buyers who would not know betters
- tapland 4y agoI’ve heard of a few buildings around herein Scandinavia (almost empty with businesses downsizing space as contracts lapse) who supposedly have this, and they can’t reduce rents because valuation would drop too much.
- htag 4y agoYeah, they is risk in this type of lending. There's also risk in all lending, and managing risks is what banks do. This is less risky than many think on the surface. The major risk has to do with the asset class as a whole losing value, but that would be the same for any commercial property mortgage. 1. The asking rent has to close to actual market value. These small and medium sized banks have the local expertise to know what properties are actually renting for. 2. Tenets in commercial properties tend to stay around much longer than residential, and often a commercial property will stay vacant longer than residential property. The bank will want to see you have enough cash reserves to cover the loan payment for longer then they expect it to be vacant.
- dllthomas 4y ago
- lotsofpulp 4y agoI would need to see proof of this. When you go to get CMBS financing, you will be asked to maintain a certain debt service coverage ratio. https://www.investopedia.com/terms/d/dscr.asp https://www.investopedia.com/terms/d/dscr.asp Every month, an outside firm asks for the financials to confirm you are meeting the DSCR, otherwise you could be considered to have defaulted (even if the loan is being paid).
- balderdash 4y agoThe thing is the average duration of those loans is ~5yrs, so the ~15-20% of the portfolio that needs to refinance this year was stuff that got financed five years ago, and probably has pretty decent loan to values given that the property values are in most cases up from where they were 5 years ago. It’s the stuff that was financed in the past couple of years that is going to be the most risky, but unless rents fell off a cliff, has a bit of runway to play out.
- Melatonic 4y agoYea this sounded scary to me at first but now that I think about it does not seem all that bad. If you were dirt rich it is probably a great time to be in the skyscraper buying market
- jagged-chisel 4y agoDirt poor. Filthy rich. I wonder where dirt rich fits on the scale. :-)
- nebulousthree 4y agoDirt rich is untouched money. Collected for the sake of it. Filthy is what you get once you've touched it enough.
- chrisweekly 4y agoAre you making that up? Genuinely curious, as I'm agreed w/ parent you replied to on the "dirt poor / filthy rich" idioms.
- deleted 4y ago[deleted]
- nebulousthree 4y agoCall it a (rare) creative whim!
- loa_in_ 4y agoArmchair opinion: They should sell the properties to make up if they're having a deficit. Not predicting how this market situation would play out sounds like mismanagement.
- dylan604 4y agowho is buying these properties at this moment?
- sam_lowry_ 4y agoI know, the discussion is US-centric, but last year Europe saw lots of binge buying of corporate office spaces by the local governments in view of conversion into refugee centers.
- biggoodwolf 4y agoWho's gonna pay the real estate taxes? LOL
- InitialLastName 4y agoI don't know if you're asking to be tongue-in-cheek, but this is a salient question. Normally, government buildings ("Held for public use") don't pay property taxes. This can be a serious issue in municipalities where large portions of the non-residential real estate is held by a higher-level governmental entity, such as Jackson, Mississippi, where the state government makes up a large bulk of the functional real estate, and thus does not contribute to the municipal tax base (while still making substantial infrastructural demands). [0] NY state example: https://www.osc.state.ny.us/files/local-government/publications/pdf/propertytax_exemptions.pdf https://www.osc.state.ny.us/files/local-government/publicati...
- escapecharacter 4y agoUnhoused homeless people actually have a non-zero cost to the cities they’re in, whether it comes to incarceration or other costs. Cities could convert these office spaces into homeless shelters and save money.
- lsllc 4y agoA little surprised to see Boston increasing rent activity, but I think Boston has been slowly losing its footing on the tech ladder in favor of Biotech (take a look around Kendall Sq). Can't really WFH in Biotech if you need lab space. Probably started when DEC was consumed by Compaq ... even YC moved out (maybe it's the weather).
- r_klancer 4y ago(Sitting in Kendall Square right now). I'm not surprised, though we're saying the same thing. So. Much. Biotech. This is why the WFH revolution didn't make me panic when I discovered how much it would end up costing to renovate a small house 1.5 miles from here. So much biotech, and for that you need to be in the lab at least some of the time. The MBTA's recent troubles ("global slow zone", anyone?) only make it "better", like I paid them off or something.
- neilv 4y agoI'm sitting just up the street right now, and -- hoping to buy a walkable nice home in town someday -- wholeheartedly counsel the East Cambridge biotech people and the Kendall MSFT/GOOG/etc. outpost people to make a luxurious and convenient commuter rail ride, between work and BFE part of their daily lifestyle.
- kitten_mittens_ 4y agoIf the commuter rail ever electrifies and becomes regional rail, it might not be so bad.
- lsllc 4y agoThe commuter rail as-is is too infrequent, too packed and too polluting with all those stops & a diesel train. Overhead electrification on the commuter rail lines or even battery-electric trains would allow the T to run Green line style trams further out into the 'burbs out to I95 and let the commuter rail trains focus on the I495+ outer burbs/medium distance without having to stop frequently on the inner part. Reusing the existing commuter rail lines with trams is much cheaper than building new T lines as they did with the Green line into Medford (and if you don't live in Medford, it doesn't help you!).
- e_i_pi_2 4y agoThis seems good right? Lowering rental prices means lower operational costs, so more of the money can go to the employees ideally
- conanbatt 4y agoIf anything it increases company profits, why would companies give the rent money back to employees?
- xwdv 4y ago[flagged]
- terminatornet 4y agoso if you have two employees: - employee 1 is two times as productive as anyone else on the team, works remotely - employee 2 barely gets any work done but has perfect office attendance your feeling is that employee 2 should get a raise because they showed up to the office?
- xwdv 4y agoFrom the logic of an office dweller employee 2 clearly needs the money more.
- terminatornet 4y agowhat?
- re-thc 4y agoHow is this measured? Most of the time they can't tell who's more productive (as in properly and not the noise or the loudest).
- rr808 4y agoThe reduced productivity of people WFH costs the company more than the office space did.
- ianlevesque 4y agoGood, this has been overdue for a massive correction for years.
- ShadowBanThis01 4y ago[flagged]
- jimt1234 4y agoThe San Diego market is up? Anyone know why? Everyone I know in San Diego is WFH now. I thought we'd be closer to the San Francisco market.
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- nitwit005 4y agoConcentrating on metro areas seems like it would hide some of the impact. There are properties that were targeted toward industries like call centers, which seem likely to end up fully remote.
- shove 4y agoI’m in Raleigh NC so I saw the chart, sighed, and hit the back button. Commercial space whether Class A office or industrial/warehouse and everything between is outrageously expensive.
- habosa 4y agoSan Franciscans seems to have just collectively abandoned downtown. Empty offices, empty retail, empty streets, seemingly no attempt to do anything new down there. It’s mostly fine with me, I don’t really need to go there and I’m lucky to be able to WFH, but I think 30% doesn’t even begin to describe how far it will fall if nothing changes. The value of that entire area for business is headed to zero. The real shame for me is Market Street. It’s the main transit artery (Bart, Muni) and bike route through a large part of the city. And most of it is now downright scary. Just hundreds of people in bad situations, not somewhere I’d want to linger.
- trophycase 4y agoSame way in my city. There are dozens and dozens of parking structures that are just absolute blights on the area, ultrawide streets that discourage and make miserable any form of walking, unmanaged homeless and addict problems, and awful zoning (even mixed use needs to ensure that there are many small tenants, not one massive tenant).
- xeonmc 4y agoSo San Francisco is becoming Detroit?
- doitLP 4y agoThe difference is SF has amazing weather, some of the best in the world. Detroit is a windy frozen wasteland 6 months of the year. I think they need to do a whole order of magnitude more self-destruction before they’ll really be able to keep people away.
- ghaff 4y agoThat's a bit of an exaggeration but SF has both weather and easy access to a lot of natural beauty, hiking trails, and so forth. Detroit has a nice Riverwalk and I'm sure any locals can point to other local things of interest. I will say that I was at a tech event in Detroit in the fall. Things I would do (knowing what I do about the city even today) in SF at night without a second thought felt risky and many other attendees felt the same--and there were some safety incidents. It wasn't even so much the things that might make you feel unsafe in the Tenderloin. It's that if you were walking 1/2 mile to someplace it was just deserted.
- kmeisthax 4y ago[Louis Rossman intensifies]
- captrb 4y agoI've wondered if there will be emerging business models for medium-sized, amenities-included (AP wiring, coffee, snack service, etc..), short-lease office spaces. Basically for when a company wants to downsize, but also wants to retain a little bit of physical space for meetings, events, and folks that live nearby. Nobody wants to sign a three year lease for their whole company, nor do they want a "we work" space where you'll be surrounded by random people. I think companies will want to hedge on short term accommodations. I don't have the real estate knowledge to know if this is even possible.
- jsharkey 4y agoWeWork was just a few years too early :)
- Waterluvian 4y agoOne challenge about office space is that it can be a very narrow margin business. It’s often cheaper to not operate than to slash rent to get anyone in. High turnover is even more expensive. I do like the idea of a No Frills We Work. The Holiday Inn of office space. Clean. Beige. Functional. No “culture.” No common areas. Just shared entrances and hallway like your traditional office complex.
- mattweinberg 4y agoThat sounds a lot like Regus to me, which has been around for a long time: https://www.regus.com/en-us https://www.regus.com/en-us
- xyst 4y agoGood. I hope the commercial space crashes to $0. Need more space where people can be housed or visit places of interest. Single purpose zoning is a relic of the 1950s suburban experiment.
- tapatio 4y agoLol. Have you been to cities with multi-purpose zoning? Factories next to houses? It's nasty.
- closeparen 4y agoYeah obviously these houses are worthless, the buildings are way too tall and there's a cafe blighting the neighborhood. https://www.girlwiththepassport.com/wp-content/uploads/2021/01/Herengracht.png.webp https://www.girlwiththepassport.com/wp-content/uploads/2021/...
- bostik 4y agoYeah, terrible places. You should visit an established one some day. Helsinki. Stockholm. Berlin. London. Amsterdam. Prague. (Oddly enough, the parts of Madrid I've seen were less mixed.) You don't have residential and heavy industries lumped next to each other. You instead get multi-use buildings with lower floors dedicated to shops and restaurants, higher floors to offices and homes. And clusters of light industry nearby. Over a period of decades, locations with somewhat heavier industry may get encroached by residential creep, eventually making their logistics hard to sustain. They move out, leaving their large facilities behind. These in turn get repurposed for lighter industrial use. The old Hartwall[×] bottling plant in Helsinki went from an active industrial site to an abandoned husk, to a repurposed site in about 25 years. [×]: Finnish soda maker
- Mashimo 4y agoYou can mix commercial, medium, high and low density housing without it being nasty. Just because it's multi purpose, does not mean there has to be "factories"
- dehrmann 4y ago
- corysama 4y agoI wonder how much of the SF 30% was the closure of so many WeWork clones. My group toured several of them right before the pandemic hit and the prices were redunk. $1000/month for a desk and barely enough space to get in and out of it. At one space we asked about the speed of the wired network and they didn’t know. Turns out it had been down for an unknown period of time and no one noticed because everyone was working on the beanbags in the common party zone. We settled on an old office a block away. Ugly and slightly musty. But, 5x the space at 1/2 the price. And, the tiny staff were competent and eager to help. Three months later Covid hit and we never went back :( All still working from home.
- jjav 4y ago> so many WeWork clones I'm in SV, not SF, but similar experience. When pandemic started was looking for remote office space and all these WeWork clones had outlandish pricing. Ended up renting from an individual office building owner, twice the space for 1/4th of the cost. Still there.
- sgt101 4y agoI wonder if there might be a balancing process here. puts on rose glasses might it be that companies start to buy adequate office space and provision for their workers so as to make life in the office bearable again? I started my career in an open plan office - so not halcyon days or something. But when I started I had a decent area, meaningful partitions and lots of deskspace. I had a cupboard and some draws. Just before I went remote I was down to a space big enough for a laptop and a mouse and to pull my chair into. I was opposite another worker with no partition and had people on both sides of me. Sure I was paid 5x more in real terms than when I started... but conditions were dreadful.
- junto 4y agoConsidering the general lack of housing and continuing rising prices combined with the WFH revolution, it would seem to me that we are reaching a paradigm shift in urban design and planning. The smartest thing we could do now is repurpose old office spaces into housing, much like many old warehousing in cities like London and Hamburg were repurposed 30 years ago. It would massively increase the overall housing stock, and the continued WFH would reduce commuting, pollution and help countries better achieve their climate change carbon reduction targets.