I'm wondering if we are on the verge of a commercial property apocalypse. If rents are eventually forced down in large metropolitan areas it will wipe out billions of dollars in property wealth. Could make the GFC look like a blip.
In cities with diverse economies and a strong talent base this evolution happens quite quickly. Elsewhere it happens more slowly, and thus it’s more painful, but it will eventually happen there too.
edit: Oh, yeah, I pay rent and insurance to Berkshire today, guess I'm there.
I'd expect a much more sophisticated 21st century take on company stores before some libertarian utopia.
Interestingly, the modern US military base still often resembles a company town. While not perfect, my impression is that life isn't worse then off base.
You get promoted, you're now given duplex housing in the NCO housing area. You now have a yard. Your grass grows too long. The military police ticket you, and notify your supervisor.
You goto the store on post. A coworker is there. He's with some girl who isn't his wife.
You goto the dining facility. You have to go to the dining facility because your paycheck is automatically deducted $300+ a month because you are forced to have a meal card, regardless of how often you eat there.
Just a few examples from people I know. Everyone tries to get statement of non-availability so they can live off base.
I guess the ideal situation is when your goals align with what the company wants out of you.
For example, California could presumably make better housing decisions if existing property owners didn't get a say.
That said, the weaknesses of dictatorships obviously apply equally. A benevolent dictator leads to great happiness; a terrible one leads to hell that can only be overthrown by revolution.
There’s a wicked critical mass factor where you need enough now to be able to get people to start businesses there rather than moving, and there’s a nasty feedback cycle with shrinking tax bases cutting into city services which is hard to break out of.
SF and NYC probably haven’t priced out enough diversity to get through this but there are a lot of cities which only need a couple of employers to fold or relocate to start having big challenges. Attracting teleworkers quickly enough could help but a lot of old industrial and even office space will require a lot of work to convert into residences.
I still suspect companies which own their office properties will be willing to give it up, it never ceases to amaze me the pride some executives put into having their own head quarters with all the amenities. Some come across as offended when workers want to extend the work from home situation all the while praising their people for doing so well while working from home.
Even with a correction in demand there will still be value in the property. The industry will not be wiped out.
The only explanation is the prevalence of some form of money laundering, an area I’m not an expert in.
Commercial real estate is going the way of the newspaper industry - it will not go away, there will remain some successful examples, but the industry as a whole will be decimated.
its better that you aren't an expert in the lit market or the dark markets, god forbid the people form enough consensus to actually change it.
New York and San Francisco laws capping rent increases also deter rent decreases. Particularly if the decrease might wind up being temporary.
I would imagine companies like WeWork may actually come out ahead here; because if your own company doesn't provide you with a place to work away from home, you might still need an office somewhere.
According to [1], as of 2015, 77% of commercial real estate is owned by private equity and REITs. Those types of investments primarily generate returns via dividends that come from rent. So it seems like most investors can't let them sit empty?
[1] - https://www.thebalance.com/what-is-commercial-real-estate-33....
As a result, there's also a whole bunch of subleasing going on in commercial RE, hence, it may end up being a whole chain of random third-parties taking the loss for the owners of the buildings (e.g., companies that need to move out of their office after outgrowing it, etc). Surprisingly, this might make an even better argument for the come-back of WeWork -- their whole model from the start was to makeover the buildings abandoned by the tenants.
Likewise, it may not affect the sale price at all, because noone would want to tank their own REITs, even if the market itself is stale -- the owners have a vested interest in keeping the bubble afloat.
Anyone who was thinking of selling but doesn't urgently need to will delay until it's not so much of a buyer's market. But this means there will be a buildup in the number of people who have been waiting to sell. So prices will recover slowly because it will be necessary to chew through this backlog.
But, as in any downturn, there are people who are sitting on cash and looking for bargains. They will buy up some of what's for sale. (Downturns always create chaos, and there are people who are financially ruined and other people who multiply their wealth dramatically.)
We may see a decline in the popularity of space-efficient open office spaces.