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Office real estate crash will be so sharp, values unlikely to recover by 2040
- DoingIsLearning 3y agoOn track to follow Mall real estate. Probably why the push for RTO is so strong in some business areas.
- DoingIsLearning 3y agohttps://web.archive.org/web/20230625111537/https://fortune.com/2023/06/23/commercial-real-estate-crash-office-values-unlikely-to-recover-by-2040-says-capital-economics/ https://web.archive.org/web/20230625111537/https://fortune.c...
- RyanAdamas 3y agoThis is why changing zoning laws is so important. These buildings and their underlying values can be saved by 'going condo' or conversion to smaller unit spaces for the purpose of housing so many who are struggling with massive increases to rent. Most rent does not increase because of increased asset expenses, it increases because of increased owner expenses and that quickly becomes a slippery slope in the face of advancing inflation and housing prices. Rent is becoming a social tool for class stratification and it began in classically liberal cities when they started asking for First+Last+1Mo Dep which often equaled $5k+ in one shot. That used to be a down payment for a house and it's absolutely ridiculous given the amount of money rental income sucks out of the economy that would otherwise be used for production and consumption. In the United States, the government holds hundreds of millions of acres of land in trust and it needs to be relinquished in part to help grow the actual base of humanity they hold stewardship over, even if it means reducing investment values for the rich and powerful who have amassed so much through manufactured crises. Blackrock and other hedge funds should have never been given the power to buy homes the way they did by the Fed; it was just another shell game to hide their incredible myopia. So much so, they are now backtracking on a labor advancement which is remote work in order to stabilize their personal portfolios in real estate. That's a conflict of interest that can be tantamount to investor fraud considering the Board is not acting in the best interest of the shareholders, but in the market for which they are beholden through consolidated power at hedge funds and banks.
- ricardobeat 3y ago> the government holds hundreds of millions of acres of land in trust and it needs to be relinquished How would relinquishing that help, is access to land a real issue? You can probably already buy a lot for cheap right now, but it will be far from urban centers and won't be habitable without a ton of investment. Would have zero effect on housing.
- etimberg 3y agoConversion of office property to residential also requires a lot of capital which seems forgotten by a lot of the folks championing this kind of conversion. It's not as simple as building some interior walls and calling it a day
- baremetal 3y agoHaving remodeled commercial buildings I can say adding plumbing to a finished commercial building is a nightmare.
- cudgy 3y agoMost major conversions will require gutting out drywall, ceilings, etc back to the main architectural structure, making new electrical and plumbing much easier to accomplish versus a finished space.
- baremetal 3y agoNot if it is a slab. You have to saw cut the slab and run new plumbing and pour back. And if it is a tension slab, you absolutely cannot cut into it.
- RyanAdamas 3y agoIt is not more costly than having Hoovervilles and desperate people living hand to mouth in a world of rapidly advancing technology which was the promise of this whole societal endeavor to begin with. The governments of this world already subsidize the production costs of corporations to the tune of billions of dollars a year so they can continue to "make profit" from their productive efforts they would otherwise be failing at in spectacular fashion. - Autos - Airlines - Banks - Farming They all require massive injections of liquidity for the purpose of subsidizing poor stewardship. "Costs" is not a feasible excuse for continued economic oppression.
- xbmcuser 3y agoCurrent market prices for a lot of commercial real estate seems to be a ponzi scheme especially in the US. It is not in the interest of any of the players to decrease prices only the renters. Local government need higher prices as without the high property prices their property tax receipt will tank making them unable to meet their budgets. Banks need higher prices as they are highly leveraged and will be on the hook for billions. Same for most landlords they cant decrease the rent too much as that would decrease the value of the property and make the bank come after them to top up as they are also leveraged. Then we have got black money parked in real estate of western countries where such owners do not care much about rental income they are okay with their money being safe so dont care about renting. Then we got the countries themselves they turn a blind eye to this black money parked in their countries as it helps their economies. Plus if the black money/corruption money is from a politically exposed person they are able to be controlled/blackmailed by the 3 letter agencies of these countries.
- bell-cot 3y agoPonzi scheme? Yes. Lots of major players who really don't want the Ponzi pyramid to collapse? Yes. But, long-term, no Ponzi pyramid can avoid collapse. Black money is not infinite, and can get skittish when the music starts fading. A central bank printing money can prop the pyramid up...for a while. But that only makes the collapse bigger, and takes more of the central bank's economy down with it when it finally does go.
- ChuckNorris89 3y ago>But, long-term, no Ponzi pyramid can avoid collapse. Both politicians and industry leaders know it will inevitably pop at some point, but since they have short terms while they're in charge and won't be accountable for long term consequences of their actions, they just want to make sure it doesn't collapse while they're in power, so they keep kicking the can down the road as long as their short tenure last, then it becomes the next guy's problem, rinse and repeat. They're hopeful they can make the problem big enough that the government will have to bail them out when it crashes. It's a result of chasing maximized short term returns at the expense of long term consequences in a zero accountability system. Basically, it's what our system rewards.
- king_magic 3y agoZero sympathy. Happy for the tyranny of the office to fade away.
- bell-cot 3y ago> Zero sympathy. For Wall Street & the billionaires? Reasonable. But the crash will cause vastly more suffering for normal people than for the 0.1%.
- baremetal 3y agoI don't think most people fully grasp what is likely coming down the pike. Normalcy bias is a helluva drug.
- heywhatupboys 3y agomeh, we have much more stable financial institutions in 2023 than 2008.
- gremlinsinc 3y agolol was that sarcasm? how many banks just failed including the bank most sv startups used and 16th largest? I think we'll adapt and hopefully build housing where offices used to be.
- jddj 3y agoWithout commenting one way or the other on the strength of the system, a large bank failing and life more or less carrying on as normal isn't a sign of systematic weakness
- heywhatupboys 3y ago> how many banks just failed including the bank most sv startups used and 16th largest? that is the whole point. We had a top-10 bank fail, and you know what? our financial institutions did not cascade into failure. There WILL always be failures, ups and downs, the question is how it is mitigated.
- spokeonawheel 3y agocrazy idea: us govt scoops up all the office real estate at the crash and converts to low income housing for free. Solve two crisis at once, the obviously coming real estate crisis and the homeless crisis. All for the cost of a handful of F35s If only politicians had an iota of strategy.
- pharmakom 3y agoLack of affordable housing is not a crisis for the ownership class.
- deleted 3y ago[deleted]
- ClumsyPilot 3y ago[flagged]
- tectec 3y agoIt’s not so easy to convert offices to living areas, although I think it’s been done in a few places
- eganist 3y agoOnly in buildings which could reasonably be converted to have windows for each room without wasting office space square footage. So, slimmer buildings basically.
- eganist 3y agoCode requirements for housing are far more strict. One of the reasons you don't regularly see office building conversions is because homes require things like windows for each bedroom or at least one bathroom per home. While the bathrooms can be fixed with effort, windows mean a lot of office spaces would have empty cores as only the square footage near the outer edge of the building would be used. (This isn't my area of expertise. I'm leaning on there being someone closer to this topic here on HN to opine, but this is at least how I understood it from real estate developers who noted to me why they're avoiding office space conversions)
- alexleeds 3y agoThis prediction comes from comparing offices to malls - and the future 17 years of demand for office space to recent changes in shopping traffic at malls. Clearly good logic.
- expertentipp 3y agoIt's not the real estate we need or can afford, but the only one we get.
- alvern 3y agoIf you look on loopnet, the cost of office versus warehouse per sq ft is staggering. It's a large visual indicator of a bubble. I've been looking for 1500-3000 sq ft for a light manufacturing space for around two years. In my area warehouse $/sqft is $5-7 a year. Office space is $13 for old and dated layouts. I have no use for that dotcom era conference room. I need 10 ft dock doors, tall ceilings, and reliable 3 phase power. Buying land outside my metro area and building new is becoming the only option for me until this crash actually happens. Sprawling out of the metro would only bite me down the line because the labor market is even tighter in rural areas.
- bagels 3y agoWhat would be a non bubble price to you for industrial space?
- alvern 3y agoIn 2022 I would have accepted $10 per sq ft if it ticked all the boxes. There's been a few spaces I kicked myself over not signing soon enough ($6 per sq ft, 3200 sq ft, large with ample power 480v with 600 amp service, concrete roof, dock door)
- emsign 3y agoFine by me, turn them into homes if possible. Or would that lead to yet another devaluation now on the residential housing market as well? Do we need another bailout soon or what? It seems to me that one big reason why companies want their employees to return from home office so badly is to secure their investments in real estate. The benefits of having leaner office spaces are in conflict with the investment made into these office spaces. That's one issue with parking your capital into speculative assets, it ties down your freedom of action tremendously.
- stainablesteel 3y agoit would be cool to have super cheap office space
- rmbyrro 3y agoWhat if we convert "abandoned" offices into hydroponic (or similar) production? Would cities allow this?
- baggy_trough 3y agoMore importantly, would it make money?
- TechBro8615 3y agoWhy would "we" do that? Is there a food shortage?
- seydor 3y ago2040: What is an "office"?
- EVa5I7bHFq9mnYK 3y agoA rack of H-100s needs space too, and certainly more cooling than a programmer it replaces.
- seydor 3y agoThat's called an office?
- api 3y agoHence the rash of articles against work from home.
- zzzbra 3y agoThe reasoning in this article seems specious. Malls and offices are not the locus of the same activities. fwiw I've RTOed for three to four days a week and I love it. I think it will continue to gain currency with a lot of folks who are serious about their work at companies with other employees who are also serious about their work.
- gedy 3y ago> employees who are also serious about their work. Come on, office attendance is not a sign of being "serious about their work." Farting in an office chair all day is frequently a performance to feel busy or fill other needs in their lives.
- zonkerdonker 3y agoI only go into the office when I'm not feeling serious about work. If I have shit to get done, I do it at the place with zero commute time and substantially less distractions. When I'm light, it's nice to go into the office to shoot the shit and hang out with coworkers.
- jefftime 3y agoI don't think RTO and "serious about work" are directly proportional. Some people are much more productive away from a noisy and distractive environment. I think it just depends on the person
- fullspectrumdev 3y agoI went back to the office recently for a day, and got literally nothing done. Pretty much all my coworkers also reckon they are much less productive in the office.
- foolz 3y agoSo you're saying that people over at companies like Basecamp have never been "serious about their work"? Seems unlikely to me.
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- bushbaba 3y agoA collapse or real estate would be a good thing for the economy. It would free up middle class paychecks to be spent on more goods, driving long term growth of our businesses. The risk is without the correction you end up like many EU countries whos main GDP growth is real estate which only takes you a few generations to fall apart.
- andsoitis 3y ago> The risk is without the correction you end up like many EU countries whos main GDP growth is real estate which only takes you a few generations to fall apart. What is an example country whose main GDP growth stems from real estate? The EU economy as a whole is driven mostly by the services sector, which accounted for 70% of value added in 2020. https://www.visualcapitalist.com/16-trillion-european-union-economy/ https://www.visualcapitalist.com/16-trillion-european-union-...
- cm2012 3y agoChina right now. Massive real estate crisis brewing. Local government in China is funded by land sales, which encouraged rampant speculation.
- the_optimist 3y agoPerhaps, though this potential Ponzi has been brewing for nearly two decades. If they grow out of it, it’s definitionally not a Ponzi.
- onlyrealcuzzo 3y agoHard to grow out of it when they already have more built sqft per person than Europe, and they're projected to have about half the population in 60 years...
- ttul 3y agoCanada’s real estate sector is massive. The economy seems to run on digging things out of the ground to sell to other countries, buying nice things made abroad, and then selling houses to each other. All of this fun is backstopped by a government only too keen to keep the good times rolling.
- diogenescynic 3y agoThere are prime real estate locations that have set vacant for years instead of lowering rates. I hope the commercial real estate is crash spectacular and ends the extortionate racket that it's become.
- ttul 3y ago“ Office occupancy fell less than a point last week to 49.7%, according to Kastle’s 10-city Back to Work Barometer. Occupancy dipped across seven of the 10 tracked cities — except for Chicago, Dallas, and San Jose, Calif. Chicago continued its post-pandemic climb and rose half a point to 54.7% occupancy, surpassing last week’s record high. Dallas and San Jose also rose nearly half a point to 54.5% and 39.4% occupancy, respectively. The average daily high was Tuesday at 59.2% and the low was Friday at 32.8%.” That’s from KASTLE Systems, an office access management company. The office occupancy rates across the US have stagnated and don’t seem to be increasing. I don’t see why occupancy rates would go back to pre-Covid levels ever again. The work from home transition is permanent. Therefore, valuations of office space will eventually have to be marked down and given the leveraged nature of the market, the markdown’s impact on commercial real estate corporate valuations ought to be magnified considerably.
- hsjqllzlfkf 3y ago> Yet office net operating incomes were actually higher in the first quarter of this year than in the first quarter of 2020 I'm confused.
- phendrenad2 3y agoThe prices will crash and foreign companies like Samsung and Huawei will scoop them up, opening offices and bringing much-needed careers to distressed areas.
- thepuppet33r 3y agoWe were told (unofficially) that the whole reason we were being brought back into the office three days a week was because they needed to make their real estate holdings worth something again.
- fdye 3y agoWhat I think is interesting, at least in the case of Veritas default in SF, is that they are then allowed to bid to buy the debt at a discounted price. They are using a different financial backer and likely just management on the properties, but still it seems like if you mismanage your portfolio so bad you default you probably then shouldn't be allowed to rebuy those same properties. If they wanted a debt restructuring they should have been forced through bankruptcy. https://therealdeal.com/sanfrancisco/2023/05/31/veritas-to-bid-on-its-own-debt-for-95-sf-apartment-buildings/ https://therealdeal.com/sanfrancisco/2023/05/31/veritas-to-b...
- klipklop 3y agoGood. The US commercial real estate bubble is killing small shops and small business owned retail. It's pretty unlikely it will actually crash though. Too many of the elite have too much money dumped into it. We will continue to see small closet sized shops with rents of $20,000 for the foreseeable future I suspect. Too big to fail, etc.
- pcthrowaway 3y agoI wish in discussions like these, people expressing an opinion on whether they think it would be better overall if real estate prices fell or rose, would also disclose whether or not they're a homeowner.
- Havoc 3y agoSeems redundant
- EVa5I7bHFq9mnYK 3y agoMay we rephrase this as "Office rents are finally easing and will hopefully stay sane until 2040" ?