7 ms·

In my opinion this isn’t a consequence of the pandemic, but rather an inevitable outcome from the uneven pattern of building that vastly favored commercial real

In my opinion this isn’t a consequence of the pandemic, but rather an inevitable outcome from the uneven pattern of building that vastly favored commercial real estate and prevented new housing. Even without teleworking, it was likely that jobs shifted toward suburban office parks as they had in the 80s to 2000s. People want to live close to work, and without sufficient housing in cities, commercial real estate in big cities was very likely to suffer in the long term. These foreclosures are actually a good thing as they will allow big cities to rebalance the allocation of their scarcest resource — land.

chx 3y ago
Do you see any indicators these bankrupt office towers are being converted to living spaces?
rcpt 3y ago
The cities have always been allowed to rebalance land allocation. This might provide a bit more push but I'm skeptical.
seltzered_ 3y ago
Worth noting that in the mid 2000s we had urbanist evangelism via works such as 'flight of the creative class' ( https://creativeclass.com/richard_florida/books/the-flight-of-the-creative-class/ https://creativeclass.com/richard_florida/books/the-flight-o... ) which was later put into question by the same author ( https://jacobin.com/2017/08/new-urban-crisis-review-richard-florida https://jacobin.com/2017/08/new-urban-crisis-review-richard-... )
SV_BubbleTime 3y ago
> actually a good thing Those words in that word rarely give me confidence in an idea.
- skizm 3y ago
  Same vibes as when someone describes anything as "perfectly good". It always sets off alarm bells.
  - mikestew 3y ago
    It's simply an attempt to establish the baseline to the speaker's liking. For instance, someone who doesn't like skydiving: "why would you jump out of a perfectly good airplane?" Let's start with the fact that there are no "perfectly good" airplanes, then we can debate the wisdom of free falling from 3Km.
deleted 3y ago
[deleted]
pradn 3y ago
It's quite hard to turn modern office builds into housing. Recently-built offices have huge floors, so natural light can't penetrate into the interior. Those spaces are fine as meeting rooms, but won't suffice for living in.[1] It's possible to make apartments with no natural light, but most people don't want to live in those. If they're low in rent, maybe they'd be attractive enough. But then your rent/sqft number goes down, and so your valuation, and your building is in the red with the banks. "Just turn it to housing" isn't an easy answer. There's still great demand for premium office space, but your average office building is going to suffer.[2] [1] https://www.nytimes.com/interactive/2023/03/11/upshot/office-conversions.html https://www.nytimes.com/interactive/2023/03/11/upshot/office... [2] https://www.curbed.com/2023/04/270-park-avenue-jpmorgan-chase-headquarters-foster-partners.html https://www.curbed.com/2023/04/270-park-avenue-jpmorgan-chas...
- toomuchtodo 3y ago
  But this is good. It means no new office buildings need to be built. The existing ownership and debt will simply be juggled and fought over, numbers on a spreadsheet. The buildings will still exist and be available for office needs at reduced costs (after debt takes a haircut). New urban construction can now focus solely on residential needs, and with housing unit shortages, this natural reallocation of construction effort (due to demand destruction) should be welcomed.
  - pradn 3y ago
    I'm with you - there'll be a long term re-allocation. It might take decades, though. It's a larger scale version of the problem of empty storefronts. Store owners would keep buildings empty than reify the financial cost of reducing rents. There's large numbers of empty stores on Broadway in NYC, of all places - perhaps the most famous street in the country!
  - ghaff 3y ago
    If people aren't working in cities, it remains to be seen what that does to housing demand. There are a bunch of cities that aren't great from an employment perspective and, in general, they're not a big draw for people to live there either.
closeparen 3y ago
People are more worried about their downtowns for reasons like civic pride and concern for the other businesses there, but suburban office parks were in serious decline even before the pandemic. They’re just out of the way, so no one cares if they’re vacant.
DrBazza 3y ago
You're talking US zoning laws? We don't have those in the UK. The bellwether we have for the health of the UK, or at least London, is train and tube usage. It has, apparently, returned to almost 100% of pre-COVID. That's not to say that London's commercial properties are fully reoccupied, they're not, but London is perhaps doing slightly better than US cities in this regard. Having said that - HSBC is moving from Canary Wharf back to a smaller building in the City (of London) because of the change to WFH: https://www.bbc.co.uk/news/uk-england-66019180 https://www.bbc.co.uk/news/uk-england-66019180
- ghaff 3y ago
  Boston is still around half of pre-COVID transit use--though that's overlaid with some very disruptive long-deferred maintenance. Anecdotally, traffic seems worse than ever so I assume that a fair number of people switched to their cars and haven't come back to transit.
api 3y ago
Seems to me that we've speed run the story of why suburban sprawl exist in the first place. A car is a machine to provide negotiating leverage in real estate markets. Dense urban centers, while awesome in many ways, easily lend themselves to the development of grassroots real estate cartels made up of property owners who block new construction to profit from real estate appreciation. As this occurs people are forced further and further out to find affordable places to live. Eventually the jobs start to follow, leading to tax base collapse and urban decay. This leads to a death spiral of urban decay, crime, and population flight. Then the city gets cheap and people start to move in again. Repeat cycle. Cities get cool -> people move in -> cities get expensive because you can't build -> people move out -> cities collapse. There are places that seem able to avoid this cycle, such as Tokyo, but AFAIK that relies on a different kind of governance regime that takes zoning away from local bodies and enforces a uniform pro-density zoning code at the city or even larger scale. Basically you have to break the NIMBY cartel. It also involves very proactive transit policies that build out transit to match density. Of course it could also be due in part to Japan's declining population, which makes it pretty hard to have real estate inflation.
- mlyle 3y ago
  Japan also has a radically different property ownership structure which has myriad effects.
- bugglebeetle 3y ago
  The “NIMBY cartel” here is any and all real estate investors, who have turned both housing and office space in large cities into a speculative asset class from which they expect to receive returns far beyond sanity. I wouldn’t gamble on them being disrupted any time soon. California, where Democrats have the firmest lock on the levers of power, has some of the most regressive, distortionary laws in place to protect them.
- Animats 3y ago
  > A car is a machine to provide negotiating leverage in real estate markets. Now that's a good insight. It's amusing to read the comments from commercial real estate owners. There's a huge sense of entitlement. If they're losing money, somebody else must do something to make them stop losing money. Immediately. The commercial real estate business did this in 2006-2008, and in 1999-2000 in San Francisco. The mall industry has been shrinking for years. It's not the end of the world.
ajmurmann 3y ago
I worked in a suburban office park before the pandemic. My commute to the office park wasn't substantially shorter than when I commuted to a downtown office and the office park was a lot more depressing. When I worked downtown, my coworkers would regularly explore new restaurants during lunch, have 1-on-1s over ice cream etc. The other benefit was that downtown had better public transit. Getting from one random place in the suburbs to another via public transit is a much harder problem to solve than getting people to a central area. I wish we could solve zoning and permitting and just build our cities up.
- kibwen 3y ago
  > I wish we could solve zoning and permitting and just build our cities up. Lest people think that building up necessarily means skyscrapers, it doesn't. You can build a six-story building without any of the extreme engineering or exotic materials that skyscrapers require. Paris, Barcelona, and Amsterdam all manage high levels of density where the average resident will be living in a building of approximately six stories or less.
  - tehjoker 3y ago
    I don't get why people don't like skyscrapers. They're cool. I am from NYC, so maybe I'm used to it. My understanding is the major reason they aren't build as much outside of Manhattan is because the bedrock in Manhattan supports heavy structures.
    - kibwen 3y ago
      As cool as skyscrapers are as achievements of engineering, they're only a good solution when land is so expensive that the cost of the land dominates the cost of the building. Skyscrapers just aren't materially cost-efficient and don't scale well; as they get taller, a larger and larger percentage of the floorspace must be sacrified in order to accommodate structural elements and elevators. And then you have other problems, like how they have to pump their own water rather than relying on ordinary water towers, or how wind and earthquake risk has to be accounted for as the height increases.
vkou 3y ago
The problem with suburban office parks is that commuting to them is worse than downtown when you live in the wrong suburb - one on the other side of town from them. Downtown is a central location that is equally bad to car-commute to for everyone. Suburbs make for okay car-commutes for some people, and utter hell for everyone else. You can fix downtown commutes by building out good transit networks, but there's no real way to solve the suburb-to-suburb commute problem. ---- And no, 'Just move from your suburb to the one that has the office park' doesn't work. Moving costs 6% of realtor fees on <absolutely insane house prices> + a mountain of effort and stress and other money. All for a job that might lay you off/that you'll leave next year.
onlyrealcuzzo 3y ago
> People want to live close to work, and without sufficient housing in cities, commercial real estate in big cities was very likely to suffer in the long term. Your logic doesn't really follow. Assume that you can't develop cities any more and growth is stifled - this isn't really happening nationally - it is in some cities - but let's assume it's happening nationally anyway. Office values would still go up (nominally), as long as the city itself doesn't lose its ability to generate income in real terms. Office values are going down because 1) interest rates went up, 2) the demand for office space went down (no indication this was going to happen before the pandemic). And that's really it. The majority of high paid workers live near cities. In most cities, there isn't just one nice suburb where all the workers live. The workers are spread out all over the metro (including - mainly - in the city itself), and downtown is the only convenient place. You can't easily just open small offices in the suburbs because its unlikely the entire team is in that suburb. They're probably spread out across the city. You either go to the office (in the city) or you don't (less demand for office space). Or you work at a boutique company where everyone lives in some suburb randomly (outlier). Karen From The Suburb has always wanted everyone in the company to commute to an office park in her suburb so its convenient for her. It's not going to happen now unless Karen From The Suburb becomes CEO. We'll either RTO to offices in the city, or we'll keep working from home. The future isn't more office parks in Calabasas and Marin and East Hampton.
- ghaff 3y ago
  A lot of technology companies are in suburbs/exurbs. Silicon Valley is a suburb. Boston/Cambridge basically didn't have a single tech company of note in the city by the mid90s and that mostly just changed when pharma/biotech moved in, the Seaport developed, and west coast tech companies opened up mostly Kendall Square satellites. The whole era of Route 128 computer companies never had material real estate within the city limits.
  - onlyrealcuzzo 3y ago
    Cambridge being a suburb is like calling Brooklyn a suburb of NYC. It's just a technicality of Boston not eating all the surrounding small cities like most larger cities eventually did. The peninsula in The Bay is decidedly suburban - but it is sandwiched between two of the biggest cities in the US.
tzs 3y ago
> People want to live close to work I think for most it is the other way around. They want to work close to where they live.

chx 3y ago

Do you see any indicators these bankrupt office towers are being converted to living spaces?

rcpt 3y ago

The cities have always been allowed to rebalance land allocation. This might provide a bit more push but I'm skeptical.

seltzered_ 3y ago

Worth noting that in the mid 2000s we had urbanist evangelism via works such as 'flight of the creative class' ( https://creativeclass.com/richard_florida/books/the-flight-of-the-creative-class/ https://creativeclass.com/richard_florida/books/the-flight-o... ) which was later put into question by the same author ( https://jacobin.com/2017/08/new-urban-crisis-review-richard-florida https://jacobin.com/2017/08/new-urban-crisis-review-richard-... )

SV_BubbleTime 3y ago

> actually a good thing Those words in that word rarely give me confidence in an idea.

skizm 3y ago
Same vibes as when someone describes anything as "perfectly good". It always sets off alarm bells.
- mikestew 3y ago
  It's simply an attempt to establish the baseline to the speaker's liking. For instance, someone who doesn't like skydiving: "why would you jump out of a perfectly good airplane?" Let's start with the fact that there are no "perfectly good" airplanes, then we can debate the wisdom of free falling from 3Km.

deleted 3y ago

[deleted]

pradn 3y ago

It's quite hard to turn modern office builds into housing. Recently-built offices have huge floors, so natural light can't penetrate into the interior. Those spaces are fine as meeting rooms, but won't suffice for living in.[1] It's possible to make apartments with no natural light, but most people don't want to live in those. If they're low in rent, maybe they'd be attractive enough. But then your rent/sqft number goes down, and so your valuation, and your building is in the red with the banks. "Just turn it to housing" isn't an easy answer. There's still great demand for premium office space, but your average office building is going to suffer.[2] [1] https://www.nytimes.com/interactive/2023/03/11/upshot/office-conversions.html https://www.nytimes.com/interactive/2023/03/11/upshot/office... [2] https://www.curbed.com/2023/04/270-park-avenue-jpmorgan-chase-headquarters-foster-partners.html https://www.curbed.com/2023/04/270-park-avenue-jpmorgan-chas...

toomuchtodo 3y ago
But this is good. It means no new office buildings need to be built. The existing ownership and debt will simply be juggled and fought over, numbers on a spreadsheet. The buildings will still exist and be available for office needs at reduced costs (after debt takes a haircut). New urban construction can now focus solely on residential needs, and with housing unit shortages, this natural reallocation of construction effort (due to demand destruction) should be welcomed.
- pradn 3y ago
  I'm with you - there'll be a long term re-allocation. It might take decades, though. It's a larger scale version of the problem of empty storefronts. Store owners would keep buildings empty than reify the financial cost of reducing rents. There's large numbers of empty stores on Broadway in NYC, of all places - perhaps the most famous street in the country!
- ghaff 3y ago
  If people aren't working in cities, it remains to be seen what that does to housing demand. There are a bunch of cities that aren't great from an employment perspective and, in general, they're not a big draw for people to live there either.

closeparen 3y ago

People are more worried about their downtowns for reasons like civic pride and concern for the other businesses there, but suburban office parks were in serious decline even before the pandemic. They’re just out of the way, so no one cares if they’re vacant.

DrBazza 3y ago

You're talking US zoning laws? We don't have those in the UK. The bellwether we have for the health of the UK, or at least London, is train and tube usage. It has, apparently, returned to almost 100% of pre-COVID. That's not to say that London's commercial properties are fully reoccupied, they're not, but London is perhaps doing slightly better than US cities in this regard. Having said that - HSBC is moving from Canary Wharf back to a smaller building in the City (of London) because of the change to WFH: https://www.bbc.co.uk/news/uk-england-66019180 https://www.bbc.co.uk/news/uk-england-66019180

ghaff 3y ago
Boston is still around half of pre-COVID transit use--though that's overlaid with some very disruptive long-deferred maintenance. Anecdotally, traffic seems worse than ever so I assume that a fair number of people switched to their cars and haven't come back to transit.

api 3y ago

Seems to me that we've speed run the story of why suburban sprawl exist in the first place. A car is a machine to provide negotiating leverage in real estate markets. Dense urban centers, while awesome in many ways, easily lend themselves to the development of grassroots real estate cartels made up of property owners who block new construction to profit from real estate appreciation. As this occurs people are forced further and further out to find affordable places to live. Eventually the jobs start to follow, leading to tax base collapse and urban decay. This leads to a death spiral of urban decay, crime, and population flight. Then the city gets cheap and people start to move in again. Repeat cycle. Cities get cool -> people move in -> cities get expensive because you can't build -> people move out -> cities collapse. There are places that seem able to avoid this cycle, such as Tokyo, but AFAIK that relies on a different kind of governance regime that takes zoning away from local bodies and enforces a uniform pro-density zoning code at the city or even larger scale. Basically you have to break the NIMBY cartel. It also involves very proactive transit policies that build out transit to match density. Of course it could also be due in part to Japan's declining population, which makes it pretty hard to have real estate inflation.

mlyle 3y ago
Japan also has a radically different property ownership structure which has myriad effects.
bugglebeetle 3y ago
The “NIMBY cartel” here is any and all real estate investors, who have turned both housing and office space in large cities into a speculative asset class from which they expect to receive returns far beyond sanity. I wouldn’t gamble on them being disrupted any time soon. California, where Democrats have the firmest lock on the levers of power, has some of the most regressive, distortionary laws in place to protect them.
Animats 3y ago
> A car is a machine to provide negotiating leverage in real estate markets. Now that's a good insight. It's amusing to read the comments from commercial real estate owners. There's a huge sense of entitlement. If they're losing money, somebody else must do something to make them stop losing money. Immediately. The commercial real estate business did this in 2006-2008, and in 1999-2000 in San Francisco. The mall industry has been shrinking for years. It's not the end of the world.

ajmurmann 3y ago

I worked in a suburban office park before the pandemic. My commute to the office park wasn't substantially shorter than when I commuted to a downtown office and the office park was a lot more depressing. When I worked downtown, my coworkers would regularly explore new restaurants during lunch, have 1-on-1s over ice cream etc. The other benefit was that downtown had better public transit. Getting from one random place in the suburbs to another via public transit is a much harder problem to solve than getting people to a central area. I wish we could solve zoning and permitting and just build our cities up.

kibwen 3y ago
> I wish we could solve zoning and permitting and just build our cities up. Lest people think that building up necessarily means skyscrapers, it doesn't. You can build a six-story building without any of the extreme engineering or exotic materials that skyscrapers require. Paris, Barcelona, and Amsterdam all manage high levels of density where the average resident will be living in a building of approximately six stories or less.
- tehjoker 3y ago
  I don't get why people don't like skyscrapers. They're cool. I am from NYC, so maybe I'm used to it. My understanding is the major reason they aren't build as much outside of Manhattan is because the bedrock in Manhattan supports heavy structures.
  - kibwen 3y ago
    As cool as skyscrapers are as achievements of engineering, they're only a good solution when land is so expensive that the cost of the land dominates the cost of the building. Skyscrapers just aren't materially cost-efficient and don't scale well; as they get taller, a larger and larger percentage of the floorspace must be sacrified in order to accommodate structural elements and elevators. And then you have other problems, like how they have to pump their own water rather than relying on ordinary water towers, or how wind and earthquake risk has to be accounted for as the height increases.

vkou 3y ago

The problem with suburban office parks is that commuting to them is worse than downtown when you live in the wrong suburb - one on the other side of town from them. Downtown is a central location that is equally bad to car-commute to for everyone. Suburbs make for okay car-commutes for some people, and utter hell for everyone else. You can fix downtown commutes by building out good transit networks, but there's no real way to solve the suburb-to-suburb commute problem. ---- And no, 'Just move from your suburb to the one that has the office park' doesn't work. Moving costs 6% of realtor fees on <absolutely insane house prices> + a mountain of effort and stress and other money. All for a job that might lay you off/that you'll leave next year.

onlyrealcuzzo 3y ago

> People want to live close to work, and without sufficient housing in cities, commercial real estate in big cities was very likely to suffer in the long term. Your logic doesn't really follow. Assume that you can't develop cities any more and growth is stifled - this isn't really happening nationally - it is in some cities - but let's assume it's happening nationally anyway. Office values would still go up (nominally), as long as the city itself doesn't lose its ability to generate income in real terms. Office values are going down because 1) interest rates went up, 2) the demand for office space went down (no indication this was going to happen before the pandemic). And that's really it. The majority of high paid workers live near cities. In most cities, there isn't just one nice suburb where all the workers live. The workers are spread out all over the metro (including - mainly - in the city itself), and downtown is the only convenient place. You can't easily just open small offices in the suburbs because its unlikely the entire team is in that suburb. They're probably spread out across the city. You either go to the office (in the city) or you don't (less demand for office space). Or you work at a boutique company where everyone lives in some suburb randomly (outlier). Karen From The Suburb has always wanted everyone in the company to commute to an office park in her suburb so its convenient for her. It's not going to happen now unless Karen From The Suburb becomes CEO. We'll either RTO to offices in the city, or we'll keep working from home. The future isn't more office parks in Calabasas and Marin and East Hampton.

ghaff 3y ago
A lot of technology companies are in suburbs/exurbs. Silicon Valley is a suburb. Boston/Cambridge basically didn't have a single tech company of note in the city by the mid90s and that mostly just changed when pharma/biotech moved in, the Seaport developed, and west coast tech companies opened up mostly Kendall Square satellites. The whole era of Route 128 computer companies never had material real estate within the city limits.
- onlyrealcuzzo 3y ago
  Cambridge being a suburb is like calling Brooklyn a suburb of NYC. It's just a technicality of Boston not eating all the surrounding small cities like most larger cities eventually did. The peninsula in The Bay is decidedly suburban - but it is sandwiched between two of the biggest cities in the US.

tzs 3y ago

> People want to live close to work I think for most it is the other way around. They want to work close to where they live.