4 ms·

A $557B Drop in Office Values Eclipses a Revival of Cities

45 points by petethomas 2y ago

walterbell 2y ago
https://archive.is/koLvL https://archive.is/koLvL
safety1st 2y ago
We are sinking into a fertility crisis and across time and space, urban density has always been correlated with lower fertility - is it such a bad thing if people are diffusing away from the urban core? In fact if I'm not mistaken there are a fair number of quality of life measures that are worse in cities (for one thing they exacerbate wealth inequality). While they have a lot of conveniences, most people move to them primarily because they need a job.
- fire_lake 2y ago
  Makes sense but do you have a link? Never heard this before.
  - Animats 2y ago
    > urban density has always been correlated with lower fertility It's a classic experiment with mice.[1] But downtowns are nowhere near the density for that to appear. [1] https://en.wikipedia.org/wiki/Behavioral_sink https://en.wikipedia.org/wiki/Behavioral_sink
    - dmix 2y ago
      There is some truth to the idea though. Imagine living in a big city and you want to have kids, having kids means you need extra living space/hospitals/schooling/cars etc. You can't just easily go buy a townhouse for cheap. Neighborhood crime also becomes a concern. So it means disrupting your life, socially, culturally, and work wise and moving to the suburbs or a small town. I doubt this is just dense urbanization<>low rates, it's mostly just modern urbanization where everyone wants to live in the city but governments/NIMBYs refuse to build any housing parents or retail/services businesses supporting children can afford. So costs are artificially exorbitant. Which brings down the birth rates, so immigration is increased who also want to live in cities, and need housing and want kids...etc. So there is both artificial downward pressures on birth rates in (modern) cities and naturally via the general chaos of cities.
      - AnthonyMouse 2y ago
        > You can't just easily go buy a townhouse for cheap. But this is precisely the issue. The issue is not cities, it's housing scarcity. Housing scarcity just tends to be correlated with cities because demand there is typically high and then land owners capture the local government to constrain supply. The problem isn't housing in cities, it's the lack of housing in and around cities. What would happen if there was enough for it to be cheap?
        katbyte 2y ago
        Well for one wages would go further people would have more money and CoL would drop.
      - katbyte 2y ago
        It’s clearly not density because if you go into some of the most dense (poor) cities in the world fertility rates are not so low. It’s a western thing likely because we have priced out families and couples can no longer afford to have kids/the large apartments needed. Need to build more two and three bedroom apartments you can actually afford and raise a family in
  - ipaddr 2y ago
    https://scholar.google.com/scholar?hl=en&as_sdt=0%2C5&q=Increasing+Population+Densities+Predict+Decreasing+Fertility+Rates+Over+Time&btnG= https://scholar.google.com/scholar?hl=en&as_sdt=0%2C5&q=Incr... Part of it may be the cost, housing available, society expectations (having 3 kids is at the top of expectations). Career, starting later and perhaps too much (or too little) choice in the dating pool.
- kredd 2y ago
  Well, also cities are fun for younger people. Anyone that I know who lives in a city can move out if they want to, but quality of life would drop dramatically.
  - djbusby 2y ago
    I've been in Oakland, SF, Seattle and now am in some far (1h away) suburb (exurb?). I feel like the quality out here is good, but the stuff to do is smaller scale. Biking is safer and the city (Boston) is a short train (or drive) away. Similar sentiment from a friend in Antioch (CA). But if I had to commute daily. Hell no.
- logicchains 2y ago
  Cities "exacerbate wealth inequality" because they have more high-paying jobs. That's a big part of why people pay more to live in them.
- deleted 2y ago
  [deleted]
- knowaveragejoe 2y ago
  Cities are often cheaper to live in than suburban lifestyles, assuming you're gainfully employed and the city has a functioning real estate market. It sounds like there's a lot of office space just waiting to be converted into housing.
  - Tade0 2y ago
    > Cities are often cheaper to live in than suburban lifestyles Never heard of that ever being the case, especially if you take into account living space, which is at a premium in cities. Recent example from a friend of mine: he's selling his 62m2, two bedroom apartment in a city of 650k to buy an absolute castle of 200m2 in the suburbs that also has a separate garage. He's got two children, but could give each one a room even if he had five.
    - relaxing 2y ago
      You’re assuming upper middle class living standards.
      - Tade0 2y ago
        I need to ask where exactly do you see that?
        relaxing 2y ago
        You’ve never heard of cities being cheaper. Well you would if you heard about poor people living in cities. You know, like in the bad part of town. They can’t do that in the suburbs, because the suburbs are deliberately constructed without the infrastructure that enables cheap living in the city.
        Tade0 2y ago
        They're not actually living cheaply - just in poverty. Different thing altogether. They can't do that in the suburbs because there's hardly anything for rent there and they don't have the credit score to buy anything. My reasoning is as follows: -Real estate per unit area is more expensive in the city - that's a given. -Groceries are 30-50% more expensive because again - real estate is as well and that pushes up the price of everything. On top of that you have logistics to deal with, as you need that truck to reach the store somehow. Sure, in the suburbs you have to drive everywhere and maintain your property, but there's financial flexibility in that - you don't need the newest, most gas guzzling car or to renovate the whole place every 7 years or so. All the fathers of 4+ children that I know are in agreement that they wouldn't be able to afford having such a huge family in the city. Whoever thought it's cheaper to live in the city must be childless.
- fzeroracer 2y ago
  Urban density has not 'always been correlated with lower fertility'; this 'trend' has not held for the thousands of years of human history where we see the largest amount of human growth occur in and around urban city centers. The reason why this has changed relatively recently is because of the monopolization of the urban core by rentseeking corporations and landlords that simply sit on empty property and price out everyone else. The people that can afford to live in the urban core therefore can't afford to raise a family.
Animats 2y ago
This is the usual whining from the commercial real estate industry. They're angling for some kind of corporate welfare, saying the banking system will go bust if they don't get one. [1][2] [1] https://hbr.org/2024/07/u-s-commercial-real-estate-is-headed-toward-a-crisis https://hbr.org/2024/07/u-s-commercial-real-estate-is-headed... [2] https://www.nytimes.com/2024/06/06/business/office-building-foreclosures-losses.html https://www.nytimes.com/2024/06/06/business/office-building-...
- xp84 2y ago
  I’d be lying if I said I understood the full ramifications of the following on the macro economy, but commercial real estate in general is, in my opinion, a completely non-functioning market. Every one of us has seen countless retail and office spaces which sit empty for years or decades at a time, even in cities where space is at an absolute premium. They are empty not because literally no one would like to rent the space, but because the investors who own those properties simply ignore the market signals telling them they are priced wrong. I think maybe it has something to do with their financial games that they play, where if they cut the asking rent buy 75% to actually fill the space then whoever holds the mortgage for the building will decide they’re insolvent and foreclose? Whereas if it sits empty for six years at an absurd asking rent, theoretically the building still has the value it used to have when it actually brought in that amount of rent? Regardless of why it’s like this, I think I would prefer for the commercial real estate industry to die in a fire and return to system where prices are set according to supply and demand. Assuming that it wouldn’t cause a Great Depression, but it probably would.
  - AnthonyMouse 2y ago
    > I think maybe it has something to do with their financial games that they play, where if they cut the asking rent buy 75% to actually fill the space then whoever holds the mortgage for the building will decide they’re insolvent and foreclose? A lot of this was low interest rates. Appreciation on the building, especially given artificial scarcity from captured zoning boards, meant you could make more than the interest on the loan just through increases in the price of the building without even renting it out. So they were asking crazy rents because if they could actually get someone to pay that it's pure profit and if not they're still making money. Now interest rates are higher and that doesn't work so well so the result should be a drastic decline in rental prices, but people are holding out in the hope that the fed is going to drop rates to zero again. Which would be stupid. > Assuming that it wouldn’t cause a Great Depression, but it probably would. Nah, we just "fixed it" the wrong way in 2008. We lowered interest rates so people would borrow money (bank loans create new money) and reinflated the housing bubble. But a bubble is bad. So what you do is you let it pop. This causes deflation, which is generally bad. But uh, maybe not actually so bad right now. And if there was too much deflation, that's all too easy to fix -- it intrinsically allows you to print money and send out stimulus checks, because in that case inflation to counteract the deflation is what you want. And since you don't need to buy a house to get a stimulus check, that stabilizes the overall economy instead of re-overheating the housing market like we did last time.
elchief 2y ago
Spend the money to turn them into hotels and apartments
- Animats 2y ago
  Too much floor space far from windows in large-floor buildings. HVAC, electrical, and plumbing need a complete re-do.[1] There are attempts to subdivide office floors into long, skinny apartments with a bit of outside window. Possible, but expensive. [1] https://theconversation.com/empty-office-spaces-can-be-converted-to-residential-buildings-but-it-wont-be-affordable-207168 https://theconversation.com/empty-office-spaces-can-be-conve...
- xp84 2y ago
  People always say this, but in general most office buildings are exceedingly poor targets for this kind of reuse. Large floor plates, with windows only at the perimeters and a minimal amount of plumbing (usually at only 1-2 spots in the middle of each floor where the restrooms and pantries are). As much as people wish for this, people would hate living in apartments hastily carved from office towers. Realistically the option is to find a price that attracts commercial use, or tear a lot of these down and build suitable homes in their place. I’m actually not convinced though that there’s as much point in drastically expanding the amount of downtown housing stock, while simultaneously deprecating the idea of actually going to an office. While 20-somethings are excited about city nightlife, that’s probably the only demographic which really cares about living right downtown if they don’t have a job downtown.
  - AnthonyMouse 2y ago
    > As much as people wish for this, people would hate living in apartments hastily carved from office towers. There are no bad products, only bad prices. Meanwhile availability of mildly undesirable but still livable apartments would lower rents overall through supply and demand, which benefits everybody except landlords. > I’m actually not convinced though that there’s as much point in drastically expanding the amount of downtown housing stock, while simultaneously deprecating the idea of actually going to an office. The current problem is that building towers in the suburbs is prohibited by law and there isn't a lot of suitable empty land, so your options are to build housing in the city where it's allowed or not at all. Now, if you can get the suburbs rezoned for taller buildings, go right ahead, but in the meantime people are willing to take what they can get.
jlund-molfese 2y ago
Ok, I know this isn’t the point of the article, but I can’t resist yelling at clouds. Where did Bloomberg come up with this idea of an “East Loop” in Chicago? There’s no such thing as the East Loop. There’s West Loop (west of the loop), South Loop, and then you’ve got the actual Loop, which is the CBD. East Loop would be in the middle of Lake Michigan, and real estate prices have never been very high there. There is the New Eastside, which surrounds Lakeshore East, but it’s part of the Loop.
- TeaBrain 2y ago
  "East Loop" threw me for a loop too. I was wondering whether anyone would mention that exact thing. I don't think the author was even sure of their use of it, as they pivoted to "Central Loop", which was also a little perplexing.
  - seanicus 2y ago
    On the upside this error indicates that the writer just doesn't know Chicago, instead of the increasingly common issue of articles being written by (de)generative ai
deleted 2y ago
[deleted]
gostsamo 2y ago
As far as I get, the issue is aging infrastructure and the business is just moving elsewhere. A bit of creative destruction and in a decade or two those parts will be gentrified again because the necessary renovations will be cheap enough.

45 points by petethomas 2y ago

https://archive.is/koLvL https://archive.is/koLvL

We are sinking into a fertility crisis and across time and space, urban density has always been correlated with lower fertility - is it such a bad thing if people are diffusing away from the urban core? In fact if I'm not mistaken there are a fair number of quality of life measures that are worse in cities (for one thing they exacerbate wealth inequality). While they have a lot of conveniences, most people move to them primarily because they need a job.

fire_lake 2y ago
Makes sense but do you have a link? Never heard this before.
- Animats 2y ago
  > urban density has always been correlated with lower fertility It's a classic experiment with mice.[1] But downtowns are nowhere near the density for that to appear. [1] https://en.wikipedia.org/wiki/Behavioral_sink https://en.wikipedia.org/wiki/Behavioral_sink
  - dmix 2y ago
    There is some truth to the idea though. Imagine living in a big city and you want to have kids, having kids means you need extra living space/hospitals/schooling/cars etc. You can't just easily go buy a townhouse for cheap. Neighborhood crime also becomes a concern. So it means disrupting your life, socially, culturally, and work wise and moving to the suburbs or a small town. I doubt this is just dense urbanization<>low rates, it's mostly just modern urbanization where everyone wants to live in the city but governments/NIMBYs refuse to build any housing parents or retail/services businesses supporting children can afford. So costs are artificially exorbitant. Which brings down the birth rates, so immigration is increased who also want to live in cities, and need housing and want kids...etc. So there is both artificial downward pressures on birth rates in (modern) cities and naturally via the general chaos of cities.
    - AnthonyMouse 2y ago
      > You can't just easily go buy a townhouse for cheap. But this is precisely the issue. The issue is not cities, it's housing scarcity. Housing scarcity just tends to be correlated with cities because demand there is typically high and then land owners capture the local government to constrain supply. The problem isn't housing in cities, it's the lack of housing in and around cities. What would happen if there was enough for it to be cheap?
      - katbyte 2y ago
        Well for one wages would go further people would have more money and CoL would drop.
    - katbyte 2y ago
      It’s clearly not density because if you go into some of the most dense (poor) cities in the world fertility rates are not so low. It’s a western thing likely because we have priced out families and couples can no longer afford to have kids/the large apartments needed. Need to build more two and three bedroom apartments you can actually afford and raise a family in
- ipaddr 2y ago
  https://scholar.google.com/scholar?hl=en&as_sdt=0%2C5&q=Increasing+Population+Densities+Predict+Decreasing+Fertility+Rates+Over+Time&btnG= https://scholar.google.com/scholar?hl=en&as_sdt=0%2C5&q=Incr... Part of it may be the cost, housing available, society expectations (having 3 kids is at the top of expectations). Career, starting later and perhaps too much (or too little) choice in the dating pool.
kredd 2y ago
Well, also cities are fun for younger people. Anyone that I know who lives in a city can move out if they want to, but quality of life would drop dramatically.
- djbusby 2y ago
  I've been in Oakland, SF, Seattle and now am in some far (1h away) suburb (exurb?). I feel like the quality out here is good, but the stuff to do is smaller scale. Biking is safer and the city (Boston) is a short train (or drive) away. Similar sentiment from a friend in Antioch (CA). But if I had to commute daily. Hell no.
logicchains 2y ago
Cities "exacerbate wealth inequality" because they have more high-paying jobs. That's a big part of why people pay more to live in them.
deleted 2y ago
[deleted]
knowaveragejoe 2y ago
Cities are often cheaper to live in than suburban lifestyles, assuming you're gainfully employed and the city has a functioning real estate market. It sounds like there's a lot of office space just waiting to be converted into housing.
- Tade0 2y ago
  > Cities are often cheaper to live in than suburban lifestyles Never heard of that ever being the case, especially if you take into account living space, which is at a premium in cities. Recent example from a friend of mine: he's selling his 62m2, two bedroom apartment in a city of 650k to buy an absolute castle of 200m2 in the suburbs that also has a separate garage. He's got two children, but could give each one a room even if he had five.
  - relaxing 2y ago
    You’re assuming upper middle class living standards.
    - Tade0 2y ago
      I need to ask where exactly do you see that?
      - relaxing 2y ago
        You’ve never heard of cities being cheaper. Well you would if you heard about poor people living in cities. You know, like in the bad part of town. They can’t do that in the suburbs, because the suburbs are deliberately constructed without the infrastructure that enables cheap living in the city.
        Tade0 2y ago
        They're not actually living cheaply - just in poverty. Different thing altogether. They can't do that in the suburbs because there's hardly anything for rent there and they don't have the credit score to buy anything. My reasoning is as follows: -Real estate per unit area is more expensive in the city - that's a given. -Groceries are 30-50% more expensive because again - real estate is as well and that pushes up the price of everything. On top of that you have logistics to deal with, as you need that truck to reach the store somehow. Sure, in the suburbs you have to drive everywhere and maintain your property, but there's financial flexibility in that - you don't need the newest, most gas guzzling car or to renovate the whole place every 7 years or so. All the fathers of 4+ children that I know are in agreement that they wouldn't be able to afford having such a huge family in the city. Whoever thought it's cheaper to live in the city must be childless.
fzeroracer 2y ago
Urban density has not 'always been correlated with lower fertility'; this 'trend' has not held for the thousands of years of human history where we see the largest amount of human growth occur in and around urban city centers. The reason why this has changed relatively recently is because of the monopolization of the urban core by rentseeking corporations and landlords that simply sit on empty property and price out everyone else. The people that can afford to live in the urban core therefore can't afford to raise a family.

Animats 2y ago

This is the usual whining from the commercial real estate industry. They're angling for some kind of corporate welfare, saying the banking system will go bust if they don't get one. [1][2] [1] https://hbr.org/2024/07/u-s-commercial-real-estate-is-headed-toward-a-crisis https://hbr.org/2024/07/u-s-commercial-real-estate-is-headed... [2] https://www.nytimes.com/2024/06/06/business/office-building-foreclosures-losses.html https://www.nytimes.com/2024/06/06/business/office-building-...

xp84 2y ago
I’d be lying if I said I understood the full ramifications of the following on the macro economy, but commercial real estate in general is, in my opinion, a completely non-functioning market. Every one of us has seen countless retail and office spaces which sit empty for years or decades at a time, even in cities where space is at an absolute premium. They are empty not because literally no one would like to rent the space, but because the investors who own those properties simply ignore the market signals telling them they are priced wrong. I think maybe it has something to do with their financial games that they play, where if they cut the asking rent buy 75% to actually fill the space then whoever holds the mortgage for the building will decide they’re insolvent and foreclose? Whereas if it sits empty for six years at an absurd asking rent, theoretically the building still has the value it used to have when it actually brought in that amount of rent? Regardless of why it’s like this, I think I would prefer for the commercial real estate industry to die in a fire and return to system where prices are set according to supply and demand. Assuming that it wouldn’t cause a Great Depression, but it probably would.
- AnthonyMouse 2y ago
  > I think maybe it has something to do with their financial games that they play, where if they cut the asking rent buy 75% to actually fill the space then whoever holds the mortgage for the building will decide they’re insolvent and foreclose? A lot of this was low interest rates. Appreciation on the building, especially given artificial scarcity from captured zoning boards, meant you could make more than the interest on the loan just through increases in the price of the building without even renting it out. So they were asking crazy rents because if they could actually get someone to pay that it's pure profit and if not they're still making money. Now interest rates are higher and that doesn't work so well so the result should be a drastic decline in rental prices, but people are holding out in the hope that the fed is going to drop rates to zero again. Which would be stupid. > Assuming that it wouldn’t cause a Great Depression, but it probably would. Nah, we just "fixed it" the wrong way in 2008. We lowered interest rates so people would borrow money (bank loans create new money) and reinflated the housing bubble. But a bubble is bad. So what you do is you let it pop. This causes deflation, which is generally bad. But uh, maybe not actually so bad right now. And if there was too much deflation, that's all too easy to fix -- it intrinsically allows you to print money and send out stimulus checks, because in that case inflation to counteract the deflation is what you want. And since you don't need to buy a house to get a stimulus check, that stabilizes the overall economy instead of re-overheating the housing market like we did last time.

elchief 2y ago

Spend the money to turn them into hotels and apartments

Animats 2y ago
Too much floor space far from windows in large-floor buildings. HVAC, electrical, and plumbing need a complete re-do.[1] There are attempts to subdivide office floors into long, skinny apartments with a bit of outside window. Possible, but expensive. [1] https://theconversation.com/empty-office-spaces-can-be-converted-to-residential-buildings-but-it-wont-be-affordable-207168 https://theconversation.com/empty-office-spaces-can-be-conve...
xp84 2y ago
People always say this, but in general most office buildings are exceedingly poor targets for this kind of reuse. Large floor plates, with windows only at the perimeters and a minimal amount of plumbing (usually at only 1-2 spots in the middle of each floor where the restrooms and pantries are). As much as people wish for this, people would hate living in apartments hastily carved from office towers. Realistically the option is to find a price that attracts commercial use, or tear a lot of these down and build suitable homes in their place. I’m actually not convinced though that there’s as much point in drastically expanding the amount of downtown housing stock, while simultaneously deprecating the idea of actually going to an office. While 20-somethings are excited about city nightlife, that’s probably the only demographic which really cares about living right downtown if they don’t have a job downtown.
- AnthonyMouse 2y ago
  > As much as people wish for this, people would hate living in apartments hastily carved from office towers. There are no bad products, only bad prices. Meanwhile availability of mildly undesirable but still livable apartments would lower rents overall through supply and demand, which benefits everybody except landlords. > I’m actually not convinced though that there’s as much point in drastically expanding the amount of downtown housing stock, while simultaneously deprecating the idea of actually going to an office. The current problem is that building towers in the suburbs is prohibited by law and there isn't a lot of suitable empty land, so your options are to build housing in the city where it's allowed or not at all. Now, if you can get the suburbs rezoned for taller buildings, go right ahead, but in the meantime people are willing to take what they can get.

jlund-molfese 2y ago

Ok, I know this isn’t the point of the article, but I can’t resist yelling at clouds. Where did Bloomberg come up with this idea of an “East Loop” in Chicago? There’s no such thing as the East Loop. There’s West Loop (west of the loop), South Loop, and then you’ve got the actual Loop, which is the CBD. East Loop would be in the middle of Lake Michigan, and real estate prices have never been very high there. There is the New Eastside, which surrounds Lakeshore East, but it’s part of the Loop.

TeaBrain 2y ago
"East Loop" threw me for a loop too. I was wondering whether anyone would mention that exact thing. I don't think the author was even sure of their use of it, as they pivoted to "Central Loop", which was also a little perplexing.
- seanicus 2y ago
  On the upside this error indicates that the writer just doesn't know Chicago, instead of the increasingly common issue of articles being written by (de)generative ai

deleted 2y ago

[deleted]

gostsamo 2y ago

As far as I get, the issue is aging infrastructure and the business is just moving elsewhere. A bit of creative destruction and in a decade or two those parts will be gentrified again because the necessary renovations will be cheap enough.