By Andrea Widburg
I’ve telecommuted for over 30 years, which was a choice I made once home computers and the internet enabled me to establish a virtual law office. However, there’s a huge difference between individuals and small offices making lifestyle and economic choices and the lockdown’s brute force transition from an office-place economy to a telecommuting economy. The former is an organic workplace diversification; the latter is the breakdown of the commercial real estate marketplace with unfathomable consequences for the American economy.
The climate changistas have long dreamed of a virtual business environment, one in which people in white-collar professions work from home. For them, the lockdowns were the perfect catalyst. At the macro level, telecommuting ends traffic jams and stops the need for vast building complexes that despoil possibly more attractive natural environments. It theoretically lowers the cost of doing business because companies no longer need to pay mortgages or rents on office facilities, as well as attendant costs (e.g., insurance, janitorial maintenance, etc.).
For white-collar workers, there are upsides, too. Not having to commute to work can save them hours per day, as well as cutting back on the costs of bus fare, fuel, and car wear and tear. Latchkey kids are no longer an issue because one or both parents are home when the kids come home. You also don’t need to spend money on a work wardrobe or expensive lunches downtown.
There are very real downsides, though. For individuals, there’s the absence of workplace camaraderie and structure. Loneliness is a real risk. The office can also be a dynamic place in which ideas bloom. When you’re sitting before your screen with only the dog or cat for company, it’s hard to focus. Also, as I can attest, while it’s nice to be home for your kids, it can be a nightmare to get any work done when they’re around.
At the larger level, while office-based businesses may save money, turning downtowns into ghost towns can destroy the entire human infrastructure supporting all the offices and their workers. Janitorial services, security guards, lunch venues, office supply stores, dry cleaners, and any other business built around a bustling downtown suddenly find themselves without customers.
When you create a vacuum, what fills it isn’t always good. With workers leaving downtowns, criminals and homeless people are moving in. That creates a vicious cycle because those people still struggling to maintain the downtown environment find that, for their own safety, they cannot share space with muggers and junkies, so they flee too.
The result of all this is that commercial real estate is empty. Small businesses don’t renew their leases, and large businesses simply forfeit them. Building owners are walking away from mortgages, leaving their empty office towers to the banks, which cannot possibly find tenants for them. The result is that we are looking at a coming commercial real estate collapse that could make 2008’s home real estate recession look like a cheery block party:
Commercial real estate has become a debt timebomb, experts have warned, as office towers remain empty in once-bustling cities.
The new era of remote work means ‘zombie’ workspaces remain vacant – while higher interest rates make it more expensive to buy or refinance buildings.
Some $1.5trillion in real estate mortgages are due this year and next, bringing the market to a dangerous precipice. When the deadline arrives, experts warn owners may be forced to default instead of borrowing again to cover the bill.
Earlier this month, the landlords of downtown San Francisco’s Westfield mall stopped making mortgage payments on its $558million loan amid rising crime and tanking sales.
Meanwhile in New York, building owners are being forced to negotiate extensions on millions of dollars of debt after failing to secure financing.
[snip]
According to building security company Kastle Systems, only about half of office workers in the Big Apple are back at their desks.
And a joint study from researchers at New York University and Columbia University found that offices in the city will lose 44 percent of their pre-pandemic value by 2029 because of the impact of remote work.
Across the country, values for offices have decreased by 27 percent since March 2022, according to data analytics company Green Street.
In 2008, with the home real estate collapse, the American economy still had some resilience. This time around, it does not, and the damage done to the financial system, when it starts radiating out to the employment sector, could be devastating. I have no advice whatsoever for how to weather the coming storm. It’s like watching a massive tornado heading your way and knowing that your storm cellar has already flooded. There’s no way out.
Still, there’s always hope, but not under this administration or with business as usual. What’s happening was probably an inevitable marketplace change that would have created a slow bleed that could be addressed in real-time rather than the current hemorrhage. Human ingenuity and grit may save the day, as they so often do, and we’ll all come out ahead. And here’s a really happy thought: With cities becoming less dense, perhaps their grip on Democrat power will be destroyed.
https://www.americanthinker.com/blog/2023/06/the_coming_collapse_of_commercial_real_estate.html