6 ms·

Office space vacancies in US and London reach at least 20-year highs

60 points by thm 3y ago

astiela 3y ago
Good, Now turn those empty offices into housing
- john_the_writer 3y ago
  And re-open the local shops, instead of having every one close in on the concrete hell.
  - deleted 3y ago
    [deleted]
- Detrytus 3y ago
  That would actually require demolishing them and building residential buildings from scratch. Most office spaces are not designed to be inhabitable 24/7, they would suck as apartments.
  - spzb 3y ago
    And yet it happens https://www.bbc.co.uk/news/uk-england-essex-47720887 https://www.bbc.co.uk/news/uk-england-essex-47720887
- c7DJTLrn 3y ago
  Wish granted. They'll be turned into luxury apartments worth $1M a piece, bought by foreign investors, and vacant 364 days a year.
  - addicted 3y ago
    There’s easy solutions to that if it ever becomes a problem (the easiest is a vacancy tax) but it’s not currently a problem in the US as can be seen from the fact that places which have built more housing in the past decade or so have much lower rents than similar places that haven’t built as much housing.
    - c7DJTLrn 3y ago
      Arguably it is already a problem. NYC's "Billionaire's Row" is crammed full of apartments built for the sole purpose of investment and remain vacant. Imagine how many homes for "regular" people (yes, it's Manhattan, they'll still be expensive) could have been built there if there wasn't a financial incentive to bury money like this. These skyscrapers buy "air rights" from neighbours to build high which takes away even more homes. London has areas with the same problem. https://www.youtube.com/watch?v=Wehsz38P74g https://www.youtube.com/watch?v=Wehsz38P74g
      - deleted 3y ago
        [deleted]
      - legitster 3y ago
        This is kind of a whataboutist point. Places like NYC and London fit a kind of niche where there is a market for this sort of opulence/money-laundering. But if you, like, sit on a bunch of commercial real estate in Des Moines Iowa, turning it around into a $50 million apartment for the Saudis is not a real possibility.
      - volkl48 3y ago
        NYC's primary problem is having the worst housing production rates of any major US city (aside from a handful that are economically struggling and have low production from outright lack of demand), and the downstate/LI suburbs being exceptionally bad as well. The rest is basically irrelevant. Every one of those few "billionaire" buildings could be 1-bedroom market rate units at 100% occupancy instead and it wouldn't do anything significant for the overall problem. For one example of how broken NYC policies are: 60% of residential lots aren't zoned for anything over 2 stories. The city needs to have much of it moderately upzoned to get decent (and decently distributed) housing development, not to somehow start building affordable skyscrapers in Midtown. ------ There's a fantastic non-partisan report here that lays out the scale of the failure and various ways to improve the issue very clearly: https://cbcny.org/research/strategies-boost-housing-production-new-york-city-metropolitan-area https://cbcny.org/research/strategies-boost-housing-producti... If you want to just skim, the various charts show it clearly enough without actually reading every paragraph.
PeterisP 3y ago
Good. Now let's see when the rent - and thus valuation of real estate - starts falling; because even if this particular space can't be used for housing, it will drag down housing rent/prices as well.
- switch007 3y ago
  Aren’t commercial real estate owners famous for not lowering prices? They don’t want to accept a lower rent amount as it lowers the valuation of their portfolio?
  - PeterisP 3y ago
    Yes, that's true, so the true impact of these vacancies on other aspects of society won't be visible until (and if!) they start actually lowering the rent despite having various reasons not to want that.
    - bequanna 3y ago
      …or they start defaulting on loans because they don’t have the cash flow to cover payments.
    - lazide 3y ago
      It’ll typically only happen when they’re insolvent anyway, and can’t make payments.
- happymellon 3y ago
  I didn't think they could, because of the loans on the properties. I'll have to dig up the explanation, but basically they take a loan for a $100 property, and if they dropped the rent then basically the loan becomes invalid and they have to repay 100%. So they will never lower rent, even if it's only kicking the can down the road because otherwise it's immediately an issue. I could be wrong, so I'm going to try and find the source.
  - wkat4242 3y ago
gumballindie 3y ago
Odd, considering london tech workers have largely been ordered back to offices so some can feel less lonely. Perhaps non tech workers have it better? Which wouldnt surprise me considering tech work in the uk is treated like construction work according to pay.
- ilikerashers 3y ago
  I wouldn’t say it’s that bad. More like mid level accounting or experienced fork lift operator.
acd 3y ago
I predict vacancies office rent will end of startup led open floor plans. Return of private rooms in offices. Prediction 5-10 years from now. Reason zero interest rates inflated real estate value which made office space more expensive. Now that there is vacancies office rent will plummet. Cheap office cheap rooms enables private rooms for developers.
belter 3y ago
https://archive.ph/6Rp96 https://archive.ph/6Rp96
legitster 3y ago
"A falling knife has no handle" As much as I like the idea of cheaper urban real estate, I think people are forgetting a few things: * This could likely precipitate a huge mortgage crisis if valuations across the board get cut without some sort of soft landing * Revenues for city governments are in the dumps already because of office vacancy. Most of this cannot be rezoned to lower cost residential without city councils admitting huge permanent revenue cuts. And there are plenty of examples of cities governments killing themselves rather than accept devaluation * Declining city revenues also mean less budget for cities to provide services that keep themselves desirable. So you are moving more people downtown and have less money to provide them with police, busses, sewer, homelessness, etc. * The only reason expensive urban housing is desirable is because of the presence of economic activity in town! So if you downsize the commercial zones the city will also be hurting demand for their housing stock! So keep in mind that this is mostly a crisis for city governments. And right now they are looking at a potential death spiral situation with no clear bottom. Put another way, cities don't really have a model for how to maintain themselves in a declining real estate market. All they see is Detroit.
- VirusNewbie 3y ago
  This doesn't make sense to me. Land values have skyrocketed in the last two years. If prices fall, I don't know, thirty percent, what percentage of owners would be underwater? 10%? 20? That doesn't seem like any sort of feedback loop, it seems like a correction.
  - helf 3y ago
    [dead]
  - legitster 3y ago
    To put things in perspective, the 2007 economic crash was triggered by only a 6% dip in housing value! But that 6% dip was enough to snowball into a 34% crash. I don't think we are looking at nearly the same situation here, but so much of the value of real estate is tied into the future value of all neighboring real estate that it can be much more intertwined than people realize. Like, if the city announced that it was going to have 30% less jobs in downtown SF, you would better believe that you have just not turned a commercial real estate crisis into a residential real estate crisis in SF as every home loan now takes a huge hit on it's future value. But again, most of the crisis is on the city planning level. It's one thing for the real estate market to correct, but SF would only get to enjoy a fraction of the savings from real estate but still expect huge outlays per resident.

60 points by thm 3y ago

astiela 3y ago

Good, Now turn those empty offices into housing

john_the_writer 3y ago
And re-open the local shops, instead of having every one close in on the concrete hell.
- deleted 3y ago
  [deleted]
Detrytus 3y ago
That would actually require demolishing them and building residential buildings from scratch. Most office spaces are not designed to be inhabitable 24/7, they would suck as apartments.
- spzb 3y ago
  And yet it happens https://www.bbc.co.uk/news/uk-england-essex-47720887 https://www.bbc.co.uk/news/uk-england-essex-47720887
c7DJTLrn 3y ago
Wish granted. They'll be turned into luxury apartments worth $1M a piece, bought by foreign investors, and vacant 364 days a year.
- addicted 3y ago
  There’s easy solutions to that if it ever becomes a problem (the easiest is a vacancy tax) but it’s not currently a problem in the US as can be seen from the fact that places which have built more housing in the past decade or so have much lower rents than similar places that haven’t built as much housing.
  - c7DJTLrn 3y ago
    Arguably it is already a problem. NYC's "Billionaire's Row" is crammed full of apartments built for the sole purpose of investment and remain vacant. Imagine how many homes for "regular" people (yes, it's Manhattan, they'll still be expensive) could have been built there if there wasn't a financial incentive to bury money like this. These skyscrapers buy "air rights" from neighbours to build high which takes away even more homes. London has areas with the same problem. https://www.youtube.com/watch?v=Wehsz38P74g https://www.youtube.com/watch?v=Wehsz38P74g
    - deleted 3y ago
      [deleted]
    - legitster 3y ago
      This is kind of a whataboutist point. Places like NYC and London fit a kind of niche where there is a market for this sort of opulence/money-laundering. But if you, like, sit on a bunch of commercial real estate in Des Moines Iowa, turning it around into a $50 million apartment for the Saudis is not a real possibility.
    - volkl48 3y ago
      NYC's primary problem is having the worst housing production rates of any major US city (aside from a handful that are economically struggling and have low production from outright lack of demand), and the downstate/LI suburbs being exceptionally bad as well. The rest is basically irrelevant. Every one of those few "billionaire" buildings could be 1-bedroom market rate units at 100% occupancy instead and it wouldn't do anything significant for the overall problem. For one example of how broken NYC policies are: 60% of residential lots aren't zoned for anything over 2 stories. The city needs to have much of it moderately upzoned to get decent (and decently distributed) housing development, not to somehow start building affordable skyscrapers in Midtown. ------ There's a fantastic non-partisan report here that lays out the scale of the failure and various ways to improve the issue very clearly: https://cbcny.org/research/strategies-boost-housing-production-new-york-city-metropolitan-area https://cbcny.org/research/strategies-boost-housing-producti... If you want to just skim, the various charts show it clearly enough without actually reading every paragraph.

PeterisP 3y ago

Good. Now let's see when the rent - and thus valuation of real estate - starts falling; because even if this particular space can't be used for housing, it will drag down housing rent/prices as well.

switch007 3y ago
Aren’t commercial real estate owners famous for not lowering prices? They don’t want to accept a lower rent amount as it lowers the valuation of their portfolio?
- PeterisP 3y ago
  Yes, that's true, so the true impact of these vacancies on other aspects of society won't be visible until (and if!) they start actually lowering the rent despite having various reasons not to want that.
  - bequanna 3y ago
    …or they start defaulting on loans because they don’t have the cash flow to cover payments.
  - lazide 3y ago
    It’ll typically only happen when they’re insolvent anyway, and can’t make payments.
happymellon 3y ago
I didn't think they could, because of the loans on the properties. I'll have to dig up the explanation, but basically they take a loan for a $100 property, and if they dropped the rent then basically the loan becomes invalid and they have to repay 100%. So they will never lower rent, even if it's only kicking the can down the road because otherwise it's immediately an issue. I could be wrong, so I'm going to try and find the source.
- wkat4242 3y ago

gumballindie 3y ago

Odd, considering london tech workers have largely been ordered back to offices so some can feel less lonely. Perhaps non tech workers have it better? Which wouldnt surprise me considering tech work in the uk is treated like construction work according to pay.

ilikerashers 3y ago
I wouldn’t say it’s that bad. More like mid level accounting or experienced fork lift operator.

acd 3y ago

I predict vacancies office rent will end of startup led open floor plans. Return of private rooms in offices. Prediction 5-10 years from now. Reason zero interest rates inflated real estate value which made office space more expensive. Now that there is vacancies office rent will plummet. Cheap office cheap rooms enables private rooms for developers.

belter 3y ago

https://archive.ph/6Rp96 https://archive.ph/6Rp96

legitster 3y ago

"A falling knife has no handle" As much as I like the idea of cheaper urban real estate, I think people are forgetting a few things: * This could likely precipitate a huge mortgage crisis if valuations across the board get cut without some sort of soft landing * Revenues for city governments are in the dumps already because of office vacancy. Most of this cannot be rezoned to lower cost residential without city councils admitting huge permanent revenue cuts. And there are plenty of examples of cities governments killing themselves rather than accept devaluation * Declining city revenues also mean less budget for cities to provide services that keep themselves desirable. So you are moving more people downtown and have less money to provide them with police, busses, sewer, homelessness, etc. * The only reason expensive urban housing is desirable is because of the presence of economic activity in town! So if you downsize the commercial zones the city will also be hurting demand for their housing stock! So keep in mind that this is mostly a crisis for city governments. And right now they are looking at a potential death spiral situation with no clear bottom. Put another way, cities don't really have a model for how to maintain themselves in a declining real estate market. All they see is Detroit.

VirusNewbie 3y ago
This doesn't make sense to me. Land values have skyrocketed in the last two years. If prices fall, I don't know, thirty percent, what percentage of owners would be underwater? 10%? 20? That doesn't seem like any sort of feedback loop, it seems like a correction.
- helf 3y ago
  [dead]
- legitster 3y ago
  To put things in perspective, the 2007 economic crash was triggered by only a 6% dip in housing value! But that 6% dip was enough to snowball into a 34% crash. I don't think we are looking at nearly the same situation here, but so much of the value of real estate is tied into the future value of all neighboring real estate that it can be much more intertwined than people realize. Like, if the city announced that it was going to have 30% less jobs in downtown SF, you would better believe that you have just not turned a commercial real estate crisis into a residential real estate crisis in SF as every home loan now takes a huge hit on it's future value. But again, most of the crisis is on the city planning level. It's one thing for the real estate market to correct, but SF would only get to enjoy a fraction of the savings from real estate but still expect huge outlays per resident.