A lot of offices are still empty and it's becoming a major risk for the economy(text.npr.org)
text.npr.org
A lot of offices are still empty and it's becoming a major risk for the economy
https://text.npr.org/1174938708
43 comments
Economists are the successor to court-clergymen: interpret arcane texts no one else has the time to read in order to justify the king's actions.
I assume you know this already from the way you put the word on scare quotes, but for everyone else: there is no "economy" in a sense that it even can be said to be good or bad. There are only people and transactions (on a spectrum between freely negotiated and forcibly imposed) and the people are either better off or worse off after each transaction. Ideally, everyone involved is better off after a transaction, including bystanders, and no one is coerced into anything, but this standard is not always (or ever?) met.
Anybody who tells you the economy is good or bad is priming you for some other form of propaganda.
Anybody who tells you the economy is good or bad is priming you for some other form of propaganda.
Excellent point. Seems like NPR is just parrotting Bloomberg on this point and not considering any positive benefits. I keep hearing that in the Pacific Northwest, office buildings are converting into apartments to increase housing supply, but I haven't seen any news organization confirm it. If true, that should be a cause celebree for NPR.
all else being equal the economy prefers you spend all that money. As long as there's a lot of surplus money floating around, better to get more of it moving.
Less commuting will eventually equilibrate, one hopes, to: * lower $ and psychological overhead on jobs that used to commute * meaning more jobs and businesses get to exist * wages might go down due to competitive pressure, or might go up, depending on the shape of the landscape * some of the money and saved will be diverted to other activities like the things you listed * or things get worse! who knows! it's path-dependent!
Less commuting will eventually equilibrate, one hopes, to: * lower $ and psychological overhead on jobs that used to commute * meaning more jobs and businesses get to exist * wages might go down due to competitive pressure, or might go up, depending on the shape of the landscape * some of the money and saved will be diverted to other activities like the things you listed * or things get worse! who knows! it's path-dependent!
This is prepping the ground for a major bailout of commercial real estate because of its moribund effect on the economy.
Mostly just starting the chant for bailing out the really, really wealthy and those who benefit from CRE. (City governments, insurance companies, mega corps, and commercial banks).
This is not a public outcry, but watch how they do it by creating a story then an echo chamber, making it part of the "recovery", blah, blah. CRE will get a fat earmark in some recession funding, just watch.
Mostly just starting the chant for bailing out the really, really wealthy and those who benefit from CRE. (City governments, insurance companies, mega corps, and commercial banks).
This is not a public outcry, but watch how they do it by creating a story then an echo chamber, making it part of the "recovery", blah, blah. CRE will get a fat earmark in some recession funding, just watch.
Exactly, this isn’t about the economy, it’s about lobbying and PR for particular private interests (though there are effects on the broader economy)
Or the new business popping up where people now are? It's not a zero sum game - but a huge loss for all the 15 minute city cultists.
1st Lt. Milo Minderbinder:
Yossarian, I want you to do something for me. [removes item from small bag] I want to serve this to the men. Taste it and let me know what you think.
[Yossarian takes a bite]
Yossarian: What is it?
1st Lt. Milo Minderbinder: Chocolate-covered cotton.
Yossarian: What are you, crazy?
1st Lt. Milo Minderbinder: No good, huh?
Yossarian: For Christ's sake, you didn't even take the seeds out!
1st Lt. Milo Minderbinder: Is it really that bad?
Yossarian: It's cotton!
1st Lt. Milo Minderbinder: They've got to learn to like it!
Yossarian: Why?
1st Lt. Milo Minderbinder: Look, I saw this great opportunity to corner the market in Egyptian cotton. How was I supposed to know there was going to be a glut? I've got a hundred warehouses stacked with the stuff all over the European theater. I can't get rid of a penny's worth. People eat cotton candy, don't they? Well this stuff is better - it's made out of real cotton.
Yossarian: Milo, people can't eat cotton!
1st Lt. Milo Minderbinder: They've got to - it's for the Syndicate!
Yossarian: It will make them sick! - why don't you try it yourself if you don't believe me?
1st Lt. Milo Minderbinder: I did - and it made me sick.
[Yossarian takes a bite]
Yossarian: What is it?
1st Lt. Milo Minderbinder: Chocolate-covered cotton.
Yossarian: What are you, crazy?
1st Lt. Milo Minderbinder: No good, huh?
Yossarian: For Christ's sake, you didn't even take the seeds out!
1st Lt. Milo Minderbinder: Is it really that bad?
Yossarian: It's cotton!
1st Lt. Milo Minderbinder: They've got to learn to like it!
Yossarian: Why?
1st Lt. Milo Minderbinder: Look, I saw this great opportunity to corner the market in Egyptian cotton. How was I supposed to know there was going to be a glut? I've got a hundred warehouses stacked with the stuff all over the European theater. I can't get rid of a penny's worth. People eat cotton candy, don't they? Well this stuff is better - it's made out of real cotton.
Yossarian: Milo, people can't eat cotton!
1st Lt. Milo Minderbinder: They've got to - it's for the Syndicate!
Yossarian: It will make them sick! - why don't you try it yourself if you don't believe me?
1st Lt. Milo Minderbinder: I did - and it made me sick.
It goes to the syndicate. And everybody has a share.
The cork for New York, the shoes for Toulouse, the ham for Siam, the nails from Wales, and the tangerines for New Orleans. Didn’t you get your share?
It's not "becoming" a major risk. It already is a major risk:
* As long-term office leases expire, more tenants are giving notice of non-renewal, because they don't need as much space anymore.
* Many office buildings cannot fulfill their monthly debt service obligations if tenant collections drop below ~80% leased, give or take, at the old $/sqft.
* Many regional banks are loaded up with loans to office buildings likely to default in the near term.
* Downtown restaurants, pharmacies, shops, and other retail operations have lost a lot of foot traffic. Many are on the verge of shutting down.
* City governments depend significantly on downtown economic activity for tax collections. Local governments are likely to see a big hole in their finances.
All of this has been on economists' radar for well over a year:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4124698
* As long-term office leases expire, more tenants are giving notice of non-renewal, because they don't need as much space anymore.
* Many office buildings cannot fulfill their monthly debt service obligations if tenant collections drop below ~80% leased, give or take, at the old $/sqft.
* Many regional banks are loaded up with loans to office buildings likely to default in the near term.
* Downtown restaurants, pharmacies, shops, and other retail operations have lost a lot of foot traffic. Many are on the verge of shutting down.
* City governments depend significantly on downtown economic activity for tax collections. Local governments are likely to see a big hole in their finances.
All of this has been on economists' radar for well over a year:
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4124698
This is going to sound rough, but who gives a fuck? How is it my obligation to pay money and waste my time sitting in traffic to prop up commercial real estate? Or banks? Local governments... Oh, poor local governments!
The future is now and the pandemic showed that it's feasible to do a lot of the work remotely. Companies that jump on it will thrive, the ones that do not will slowly sink.
The future is now and the pandemic showed that it's feasible to do a lot of the work remotely. Companies that jump on it will thrive, the ones that do not will slowly sink.
Exactly. All those ailing businesses must simply relocate to reach their customer base (which obviously sucks, but that's how market economies are supposed to work). Downtown Seattle, for example, has become a shit-hole (open-air drug market, closed businesses, drugged-out vagrants, lack of law enforcement) but that's not _because_ of empty offices; it's just another pull factor for remote work wherever possible. Why risk getting assaulted on a bus or pay for parking?
If society doesn't find a way to work through these issues before they turn into a crisis, we're bound to see (a) a wave of building bankruptcies, (b) a wave of small-business failures, (c) a wave of regional bank failures, (d) a wave of regional tax-collection holes, (e) significant stock and debt market losses for pensions, endowments, 401(k) plans, individuals, etc., and (f) higher local taxes for everyone, including you.
I doubt these property investors were planning to socialise their profits if things had turned out the same way as the last few decades why should their losses be socialised if the assets they bought just fundamentally have less demand now? Will they be stumping up to subsidise workers to work in offices or something?
Make sure noone goes homeless/starves Then let the market decide.
Make sure noone goes homeless/starves Then let the market decide.
We need to stop propping up the economy and let the natural cycles take hold.
When you say "let the natural cycles take hold," do you mean in the way Western governments used to before the Great Depression, say during the 19th and early 20th centuries? Do you realize how horrific the panics of 1818-19, 1825, 1837, 1847, 1857, 1866, 1869, 1873, 1884, 1893, 1896, 1907, 1914 were, in both the US and Europe? And after all those horrific panics, the old systems led to the Great Depression, 1929-1939. Is that what you mean?
To the extent economists today recommend propping things up, it's only because they believe the alternatives are much worse. Judging by the historical record, I'd say they're right to focus on minimizing damage, akin to doctors with their Hippocratic oath.
To the extent economists today recommend propping things up, it's only because they believe the alternatives are much worse. Judging by the historical record, I'd say they're right to focus on minimizing damage, akin to doctors with their Hippocratic oath.
Economic engineering to save an economy we want seems good.
Economic engineering to save an economy aligned against our interests doesn't as much.
And you can apply some of that engineering toward easing the transition to a more aligned economy.
Economic engineering to save an economy aligned against our interests doesn't as much.
And you can apply some of that engineering toward easing the transition to a more aligned economy.
Okay but they gambled and lost - why shouldn’t they face the consequences? I’ve had to every time it’s happened to me, why should it be different for them?
“Natural”? There’s hardly anything natural about markets let alone the economy unless you believe in god’s hand, of course.
Is there really anything substantive in arguing over the terminology?
I'm fairly certain you understand the intention behind his statement. Markets ebb and flow in accordance with forces of supply and demand, and the government pumping liquidity into a market falls naturally into the same metaphorical linguistic space as "cash flows". Money is as liquid as water.
If the motive behind the argument is suspicion that characterizing capitalism as natural is painting it in too positive of a light, then I'd figure that capitalism is as Hobbesian as the jungle.
I'm fairly certain you understand the intention behind his statement. Markets ebb and flow in accordance with forces of supply and demand, and the government pumping liquidity into a market falls naturally into the same metaphorical linguistic space as "cash flows". Money is as liquid as water.
If the motive behind the argument is suspicion that characterizing capitalism as natural is painting it in too positive of a light, then I'd figure that capitalism is as Hobbesian as the jungle.
It's natural that customer habits change, and that they move around. Brick and mortar businesses need to move to reach their target audience (i.e. to the suburbs, or to non-downtown locations).
> If society doesn't find a way to work through these issues before they turn into a crisis
True, but the solution shouldn't be to return to the way things were before.
True, but the solution shouldn't be to return to the way things were before.
"Society" can't solve anything. The vast majority of our problems are from people trying to solve crap from a top-down perspective - and failing. As others point out just let the markets rebalance.
Building bankruptcies were always going to happen - even before the virus many urban areas had out of control office building. I was in the metro DC area for 20 years there were buildings never occupied along the Dulles tech corridor - and yet they kept building more. It's a rubber band that has needed to snap for a long time now, and artificially delaying the inevitable yet again isn't going to make the inevitable any more palatable.
Small businesses come and go all the time. Small businesses will die where people no longer are, but new small businesses will sprout up where people now are. And if you truly care about small business you would have railed more against the asymmetric covid restrictions that fostered the largest wealth transfer in human history - it's a collective shame we all share. Amazing that the virus was smart enough to not infect people in big box stores or certain political protests, but freaking lethal in small businesses, schools, churches, etc.
Regional banks participated in the overbuilding - even before covid. Oh well - natural selection at work. What's amazing is that somehow only the big banks get bailouts, not the regionals. It's almost as if consolidation is being government sanctioned.
As for regional tax collection - if those regions were more appealing then people wouldn't be fleeing them and they wouldn't have tax problems. Maybe those regions with new tax collection issues should explore spending less in the first place rather than only trying to increase tax revenue? Actually providing city services and taking care of fundamentals like crime rather than making excuses for or flat out encouraging it?
The stock and market losses are only in one sector. Anyone with a decent investment strategy will be diversified to mitigate one portion of their portfolio taking a hit. If you are all in on real estate that's on you, not all of us.
Also my local taxes are going down due to the tax base increasing from everyone fleeing the sinking cities. Maybe you just need to move to change your tax base - or make your area more attractive so it will expand instead of contract.
Once again, NONE of your concerns justify artificially propping up people who have made piss poor decisions. Indeed, industries continue to make piss poor decisions because they assume someone will be there to bail them out. Screw that. It's time to just let crap fall on the floor, people to learn their lessons and make better decisions in the future. You can't legislate common sense.
Building bankruptcies were always going to happen - even before the virus many urban areas had out of control office building. I was in the metro DC area for 20 years there were buildings never occupied along the Dulles tech corridor - and yet they kept building more. It's a rubber band that has needed to snap for a long time now, and artificially delaying the inevitable yet again isn't going to make the inevitable any more palatable.
Small businesses come and go all the time. Small businesses will die where people no longer are, but new small businesses will sprout up where people now are. And if you truly care about small business you would have railed more against the asymmetric covid restrictions that fostered the largest wealth transfer in human history - it's a collective shame we all share. Amazing that the virus was smart enough to not infect people in big box stores or certain political protests, but freaking lethal in small businesses, schools, churches, etc.
Regional banks participated in the overbuilding - even before covid. Oh well - natural selection at work. What's amazing is that somehow only the big banks get bailouts, not the regionals. It's almost as if consolidation is being government sanctioned.
As for regional tax collection - if those regions were more appealing then people wouldn't be fleeing them and they wouldn't have tax problems. Maybe those regions with new tax collection issues should explore spending less in the first place rather than only trying to increase tax revenue? Actually providing city services and taking care of fundamentals like crime rather than making excuses for or flat out encouraging it?
The stock and market losses are only in one sector. Anyone with a decent investment strategy will be diversified to mitigate one portion of their portfolio taking a hit. If you are all in on real estate that's on you, not all of us.
Also my local taxes are going down due to the tax base increasing from everyone fleeing the sinking cities. Maybe you just need to move to change your tax base - or make your area more attractive so it will expand instead of contract.
Once again, NONE of your concerns justify artificially propping up people who have made piss poor decisions. Indeed, industries continue to make piss poor decisions because they assume someone will be there to bail them out. Screw that. It's time to just let crap fall on the floor, people to learn their lessons and make better decisions in the future. You can't legislate common sense.
When you say "let the markets rebalance," do you mean in the way Western governments used to before the Great Depression, say during the 19th and early 20th centuries? Do you realize how horrific the panics of 1818-19, 1825, 1837, 1847, 1857, 1866, 1869, 1873, 1884, 1893, 1896, 1907, 1914 were, in both the US and Europe? And after all those horrific panics, the old systems led to the Great Depression, 1929-1939. Is that what you mean?
To the extent economists today recommend propping things up, it's only because they believe the alternatives are much worse. Judging by the historical record, I'd say they're right to focus on minimizing damage, akin to doctors with their Hippocratic oath.
To the extent economists today recommend propping things up, it's only because they believe the alternatives are much worse. Judging by the historical record, I'd say they're right to focus on minimizing damage, akin to doctors with their Hippocratic oath.
> ... it's only because they believe the alternatives are much worse.
Who is "they"? Surely you're not suggesting that every economist alive today shares the same belief
Surely you're not suggesting the health of economy runs on the beliefs of cherry-picked economists.
2008 was a crisis you conveniently left off your list, also 2020. Bailing out people who make bad decisions and throwing insane amounts of money at people and businesses isn't the answer.
Where were these economists in 2008 and 2020? Have they changed their opinion since then? Do you know what their opinions even were?
Who is "they"? Surely you're not suggesting that every economist alive today shares the same belief
Surely you're not suggesting the health of economy runs on the beliefs of cherry-picked economists.
2008 was a crisis you conveniently left off your list, also 2020. Bailing out people who make bad decisions and throwing insane amounts of money at people and businesses isn't the answer.
Where were these economists in 2008 and 2020? Have they changed their opinion since then? Do you know what their opinions even were?
Right? Won't someone think of the poor billionaires who are going to lose pennies on the dollar in this shitfest? Have we no empathy for the haves?!
What are the solutions?
- vacant buildings suck, but there's no urgent cost to ignoring them for 5-10 years
- multi-use "free-for-all" buildings like those big apartment blocks in Hongkong. Doesn't mesh w/ western sensibility.
- convert to apartments. Works in theory, but city centre would have to remap target customer from <office worker> to <resident>.
- vacant buildings suck, but there's no urgent cost to ignoring them for 5-10 years
- multi-use "free-for-all" buildings like those big apartment blocks in Hongkong. Doesn't mesh w/ western sensibility.
- convert to apartments. Works in theory, but city centre would have to remap target customer from <office worker> to <resident>.
converting these buildings to homes would solve a lot these issues. Local business can’t survive from locals? What about the inverse of the increased economic activity in the community these workers live in instead of commute to? There has to be solutions that work for everyone besides forcing everyone back to office.
The same people wailing about their commercial real estate investments going south will probably start wailing about their residential investments going south if a glut of residential property was released onto the market from relaxed zoning. The only solution according to the MSM is going to amount to communism for property investors.
We've been doing that in the UK and it hasn't gone well. Office buildings make poor homes. Better to tear them down and build something more suitable.
Time to retrofit into housing!
Those who built smarter buildings that are easier to convert will come out on top. Those who didn't... maybe they should have put their money in VC instead of rental properties!
Those who built smarter buildings that are easier to convert will come out on top. Those who didn't... maybe they should have put their money in VC instead of rental properties!
Time for HubHaus Extreme?
Not coincidentally I've noticed a significant trend of opinion pieces in Bloomberg, WSJ, Fortune, etc. (quite arrogant in tone) consistently attacking remote work from all kinds of angles.
This must be really hurting influential wallets.
This must be really hurting influential wallets.
This seems to be a knock-on effect from the west's absurd response to a coronavirus. If they didn't lock people down, this would be a non-issue.
Sunk cost fallacy strikes yet again. Seriously "office" and "sunk cost fallacy" are becoming synonymous these days. It is downright embarrassing that they can't even offer a temptations. They don't even to think to suggest something like taking advantage of cheap office space for 'oversized' offices which justify the inconvenience of getting there by having far more than you could fit in a home office.
"We didn't mean THAT when we said disruption."
Adapt or die, economy. And get used to it, the disruption has hardly gotten started.
Adapt or die, economy. And get used to it, the disruption has hardly gotten started.
The plutocrats would like a word.
That they would.
Without predicting any specific outcome or scenario, though, I do think we are just-getting-started,
the triple threat of climate change impacts, AI, and inequity-cum-ascendant-fascism, broadly construed, make for a lot of destabilization... more than the tiger-jockey plutocrats are ready for.
If I did make a prediction, it would be that disequilibrium is going to as per usual be felt first and hard by those who always take the first fall.
But I am hopeful that we emerge from disequilibrium with the current order dismantled.
Revolution etc. are funny, as with so much else, slowly then suddenly. Etc etc.
Without predicting any specific outcome or scenario, though, I do think we are just-getting-started,
the triple threat of climate change impacts, AI, and inequity-cum-ascendant-fascism, broadly construed, make for a lot of destabilization... more than the tiger-jockey plutocrats are ready for.
If I did make a prediction, it would be that disequilibrium is going to as per usual be felt first and hard by those who always take the first fall.
But I am hopeful that we emerge from disequilibrium with the current order dismantled.
Revolution etc. are funny, as with so much else, slowly then suddenly. Etc etc.
If all these sky high real estates costs crash, won’t that just mean cheaper real estate? Making it easier to setup new businesses that can capitalise more on their labours, growing the “real” economy instead of handing off their profits to an investor class?
Sounds good to me. It proves that they are not really needed and were overvalued. They could be changed to affordable housing maybe.
Government funded news wants you to know that our political elite have tired of the Proles not funding their lavish failing city policies. You are to promptly return to office servitude where more taxes can be levied upon you for your frivolous and dangerous driving. What, you do not desire tremendous inconvenience? How selfish you are. All of these under served small business who do fuck all for you will suffer! Think of the chi- economy! Think of the economy!
Knowing nothing about economics, I’m wondering why this can’t help the housing crisis of not enough supply
Or, you know, working a bit longer for their employer?
If landlords’ profit is the only measure then yes, this is a difficult time for commercial landlords who refuse to adapt in any way.