Work from home and the office real estate apocalypse | Hacker News Reader

Work from home and the office real estate apocalypse

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153 pointsrathertrue256 comments

This has an impact not just in rents for office buildings but the entire ecosystem of support businesses that sell to workers who come into city centre to work. One example. Small organic food shop, that sold mostly to office workers and has seen a 70% drop in foot traffic. The same thing hits bars, cafes, restaurants, theatres and other venues. Those very things that make living near or in a city interesting for many people. In my case, precovid I thought a city centre apartment could be kinda nice, no commute, nice vibe and lots of access to amenities. But now much of that vibrant ecosystem is gone. Why would someone want to live in a converted office in such a setting? And if you house people who only have no other options - aren’t you just creating a type of ghetto?

I know a few areas that were gentrified in earlier times and ended up with things more suited for residents of a certain class than commuters. I also know of other downtown locations that became terrible to live in because a grocery store was uneconomical use of space.

I'd generally say that if they can fill it to a good density it can have a good local market compared to suburbs with poor density.

But how do you fill it to a good density when the cost to live there is higher and there's no need to live there to earn a living anymore?

People I knew in the conversion of industrial areas to unaffordable lofts did not have commuter jobs, maybe photographers, who combined their studio and home, etc, until they were priced out by trust fund children, possibly in disguise as boutique owners and entrepreneurs, then there are retirees looking for a certain feel and walkable community, etc.

At each stage the surrounding retail and gastronomy changed towards something that could support higher floor cost.

People, culture, and amenities attract people. Maybe lowering prices would help too. Artists, galleries, restaurants, theaters are all attracted by dense areas with prices that are attractive. Cities can also step up to help with incentives instead of completely leaving it up to the free market to sort out.

But those people and culture and amenities are just other people, and when the core economic engine of the city is gone, those people leave too.

Imagine you're a Jamaican halal chicken shop owner and your core business is professional office workers walking by on the way home from work and stopping in for a bite. When that office worker is no longer there because he can make the same salary and cut his expenses in half by moving 1000 miles away, you're going to go out of business. Maybe you move 1000 miles away also so that you can afford your rent. This is how the cascade happens.

Theaters and museums and all those aren't why cities have a lot of people, those exist in cities because that's where the people are. when people become more spread out, those things will follow suit.

The economy is supposed to be about enhancing other people's lives, not vice versa. Living in a city where you can walk down the road to get a chicken sandwich is a big win over living in a suburb where you have to drive everywhere. That's still true if you're working remotely.

Right but the vast majority of folks won’t pay more to live in a similarly sized apartment as a house in suburbia to experience that. They will spend less money on a nice house in suburbia unless they had no other choice.

If the big apartment were a fraction of the price of the house in suburbia, maybe. But it costs way too much to build tall buildings for that to ever be feasible.

Asian and European cities work because everyone expects a smaller amount of living space. And the large houses in suburbia are simply priced out of reach for 95%+ of the population.

This has it the wrong way around. The price of infrastructure means that dense places cost less to upkeep than sparse places. The reason that cities cost more than the suburbs is 1) that there's more demand for cities, and 2) in the US, taxes paid by city-dwellers subsidize the expensive suburban infrastructure.

No, all in construction costs for a typical 40 story high rise divided by number of saleable square feet equate to much higher cost per square feet than the average suburban housing development. I’ve seen very credible figures that indicates it’s at least a 2x multiple even for a barebones apartment building with no amenities at all

And that’s before the expensive taxes, permits, etc., that cities charge on top for downtown or high rise construction, which as you say partially subsidizes suburbia. So in reality it’s more around triple the cost per square foot in a North American city.

The only reason apartments bigger than a shoebox are affordable at all is because land acquisition costs when divided by hundreds of units is obviously far lower than for even the narrowest cookie cutter tract.

A 40-story high rise isn't the density we're referring to here, in a discussion of European-style urban living. Obviously one can astronomically inflate the price of any building by stretching it preposterously upwards, thereby requiring exotic materials and building techniques to support its own weight and the increasing winds and seismic concerns. But "dense urban living" doesn't mean "skyscrapers", it can mean four-to-six-story mixed-use buildings, which are both short enough to build without difficulty or undue expense and dense enough to realize efficient infrastructure costs. To be sure, skyscrapers are a dead end that we should be building less of.

In that case land acquisition costs make it too pricy since attractive downtown plots in a big city like Toronto are easily hundreds of millions per acre. Because they are zoned for 40+ story buildings.

And why would any land owner seek to zone for less than the maximal allowance?

If you mean forced downgrading of the zoning or replacing existing suburbia with mid density developments, or subsidizing mid density as opposed to suburbia, that’s an entirely political conversation since the roadblock is zoning laws and the legislature.

Earlier you were claiming that those 40+ story buildings are too expensive to build. If that's true the problem of getting people to build mid density there will solve itself. Developers that overpaid for those plots will lose out, but whatever they paid initially is a sunk cost; building something you can get paid rent for beats building nothing.

And yeah, if there are sandwich shops or whatever whose business is only viable at skyscraper-level density and not at 4-6 story density then those will go to the wall. But I doubt that's a big segment. Mid density means proportionately more floor space at street level, which should be friendlier to businesses.

We may see a more pronounced downturn in city centers, and we might see a drop in density below skyscraper level (though personally I'm skeptical of even that much). But we won't see a hollowing out of the cities; at the very least, Vienna-like density still makes sense.

You were not carefully reading. Land costs are different from construction costs.

EDIT: And in any case there is no real benefit for the city council to stop upzoning at mid-rises only. If they’re expending the political capital to upzone they have every reason to go all the way.

Land costs are a sunk cost as I said. If it's too expensive to build skyscrapers then it will make sense to build midrise. If it's not too expensive to build skyscrapers then it will make sense to build skyscrapers. There's no scenario where "it's upzoned so we'd better leave it empty instead of building midrise" makes any kind of sense.

Since when are land costs 'sunk costs'? Do you imagine land owners can't sell their land to a higher bidder? I'm talking about Canada and the U.S. here, not about countries which prohibits private land sales without prior government approval.

If you paid high pre-recession prices for land whose value has now dropped, that money is sunk; refusing to build a moderate-price building (appropriate to the land's current value) on the land because the land is "too expensive" (in terms of the price you originally paid) is cutting your nose off to spite your face.

Huh? Land value has at least doubled everywhere I know of in the U.S and Canada since 2009.

In which municipality has land value declined since 2009?

And even if so, why does that mean they are forced to build anything? They can just keep it vacant and pay a much lower property tax, some folks just don't want to go through hassles even if it's somewhat less efficient.

If land value hasn't declined then what on earth would be the logic of leaving it vacant? If you're not doing anything with it then just sell it. I don't even get what you're arguing at this point.

Some people want to own bare land? You were the one who brought up the issue of vacancy.

> In that case land acquisition costs make it too pricy since attractive downtown plots in a big city like Toronto are easily hundreds of millions per acre. Because they are zoned for 40+ story buildings. And why would any land owner seek to zone for less than the maximal allowance?

> If you mean forced downgrading of the zoning or replacing existing suburbia with mid density developments, or subsidizing mid density as opposed to suburbia, that’s an entirely political conversation since the roadblock is zoning laws and the legislature.

You appeared to be claiming that land will be left vacant in the absence of political changes (with the frankly bizarre suggestion that land needs to be downzoned to encouraged more building). If that wasn't what you were claiming then what were you claiming?

You need to understand the fact that many are willing to own bare land and put it to its less than theoretically optimal usage. In fact they will fight against attempts to develop it.

It's called land banking if you haven't heard of it before.

I'm not sure how any of your comment follows.

The density itself makes it worth paying a premium to live there. Just being able to not own a car is a huge saving that can go straight into rent, and even if it costs more the quality of life benefits are worth it.

And hell, worst case land prices and rents in the city center come down a bit, that's not really a problem.

Many/most people living in a lot of cities still own cars so that they can easily travel outside the city. It's a perfectly valid preference to live in the denser part of a city but it is a preference and not an absolute.

Sure, but not everyone has to prefer that for there to be enough demand to keep prices up.

Must be some US thing with its more mobile and dynamic population, but I dont see any real change pre-covid vs post-covid in the city centre we live in (Geneva, Switzerland) or any other bigger cities we saw in past half year.

Few moved out, few moved in, maybe rents adjusted a bit but I didnt check that. Same shops, bars restaurants opened, same entertainment going on.

Yes, it is an american thing of how cities were built and social factors. Cities here tend to have commercial districts where nobody lives and residential districts or suburbs and you have to drive between the two.

The more European model where first floor is commercial and residential in top, it's a different story to have everyone working from home, no overnight ghost town in commercial districts.

Agree.

The place I work had diverse companies in a 'tech park' - Amazon, Google, and many others inside a gated office space, the total population of which could easily surpass 10K.

We used to have a common and very vibrant food court, even though each company used to give free cafeteria food, employees used to walk to the common food court for variety - of both people and food.

Also, since there was so much traffic of well paid, propensity to spend people, office park operation office used to arrange for paid fun stuff during lunch hours, which used to lend lot of colors to dreary office days.

During Covid the food court vanished along with all fun activities (consequently all those people who used to run those). The company cafeteria obviously closed as well and even when it has started now, they are pale shadow of earlier operations (less staff, owners of food counters working as staff).

It's kind of shocking to read the phrase "vibrant food court". If this was the bar before COVID it can only get better.

You can think of the generic food courts in the typical US mall, but there are also plenty more boutique food malls around.

Read up on Singapore’s hawker centres for an idea of what’s possible with food courts

Those are the result of forced ghettoization of the street vendors. When I was a kid (mid 60s/early 70s) the place was a lot less regimented and there were street vendors everywhere. There was much greater variety of food (and hygiene). Cleaning that up homogenized things — which I want to believe was an accidental side effect, though one can never be sure.

Palo Alto used to have a funky food court where the downtown Apple store now stands. It had been a supermarket but converted sometime in the 70s. It lasted into the late 80s.

Apart from nostalgia, it’s where Debbi Fields started “Mrs Fields cookies”. Yes, another Palo Alto startup from the 70s.

Half agree.

We need to rethink the concept of city. If we don't do that we'll end up with ghettos. But if we do and implement the transformation then we'll develop something more desirable than conglomerate of various businesses. A center of a town can very well be vibrant and inspiring without most businesses if the resulting free real estate is repurposed by galleries, theaters, restaurants, parks etc.

But we won't in the near term. This will just start to happen after all other options have crumbled and one option will still be to just hold empty housing and real estate for the purpose of mere speculation. I'm pessimistic.

These vibrant ecosystems flourished where people spent most of their day. It could be a huge win if they finally migrate to residential neighborhoods, where people will now be more present.

Residential neighborhoods don’t have the same peak density. In central business districts every street has shops, in residential ones it wouldn’t be sustainable.

The reduced density is still enough to support mini-hubs.

In Europe they are common and have been flourishing again even as cities flounder.

Pre pandemic my local town center in the London commuter belt was in a death spiral. Now its expanding.

Hmm, comparing flourishing residential neighborhoods in Berlin like Kreuzberg (not every but enough streets have small shops, Cafes, Restaurants, all vibrant and positively living from sunrise to sunset and beyond, enjoyably walkable with a lot of green) vs the more purer City-center office regions like Mitte where you have shops that noone needs (yeah yeah sure someone wants to buy at Dolce Gabbana, biased not me) which just feel awkward beyond usual business hours I find this generally not true.. atmosphere is much more desirable here, and its better for the "small shops" vs Starbucks&McDonaldses also..

Sure, if you think only of residential one family house areas (but which true city centers have those) or poorer skyscraper suburbs that is true, but another story?!

Of course they would and they are.

I grew up in a district which has 150k inhabitants and an effective population density of 4.6k people per square kilometre (11.8k people per sq mile) and it was much like a city within a city, with all the shops, services etc. Everything within walking distance.

It even has somewhat of a regional identity and a political movement which capitalizes on that.

To this day I see it as the sweet spot of population density - it's dense enough for the things you mentioned, but at the same time doesn't feel crammed.

The difference in perspective in this thread boils down to North American (except NY) vs. European perspectives. My residential area has six floor buildings with lots of residents and ground floor shops and cafes. This setup only rarely exist in the US.

Much of the world proves this assumption false. See, e.g.:

- Residential districts in China and many former Soviet countries. Big concrete blocks, with the bottom floor lined with small stores. They're absolutely delightful places to live.

- Urban residential districts in the US aren't quite in this style, but a city like Cambridge will have small shops within walking distances of virtually all housing.

The critical thing is that the shops are a lot more pleasant and human than US business districts. A massive lunch hour line at some overpriced (probably due to high-rent and long lines everywhere) sandwich place isn't very human. A small business run by the owner is. One of the differences is that in residential settings, business owners and residents are part of a community -- they get to know each other, sometimes for decades. Business districts have people moving in and out too frequently for that.

"Peak density" is also a lot worse than "mean density." Both a customer and a business owner is better served with traffic spread out throughout the day, rather than nearly 100% of business crammed in during breakfast and lunch hour.

excellent comment!

> a city like Cambridge will have small shops within walking distances of virtually all housing

I lived in Cambridgeport near Central Square in Cambridge, MA. There was indeed a small convenience store/variety shop almost within sight of my apartment. In six years, I bought something from them only once that I can recall. I used to walk quite literally past them to Whole Foods to save money. (When Whole Foods is killing you on price, you’re going to have a tough go of it.) Looking on Street View now, there’s paper over the windows and a notation of “permanently closed”.

I’m in a different neighborhood of Cambridge now. There are local shops here as well. Except for the food places, most are empty of shoppers almost all of the time. I don’t know what’s different to make these shops not particularly useful, but most purchasing seems to happen at the larger supermarkets and big box stores a few miles away (or online). Those have better selection, much better pricing, and are faster/more convenient in aggregate.

I don’t blame the local stores if they have to set uncompetitive prices due to rent or whatever other factors, but consumers also don’t have to buy products at uncompetitive prices.

For grocery shopping in Cambridge, I'd be some combination of Whole Foods, Trader Joe's, and H-Mart. Yes, there are a few specialty markets and bakeries but those are almost certainly occasional things. CVS pharmacy. Maybe a hardware store if I need something routine and small. And restaurants of course. But besides buying consumables, mostly food and mostly at bigger chains, I'm not sure what all the small stores I'd be going into would be.

I remember when shopping meant visiting the butcher, bakery, fruit market, dairy. Then supermarkets were invented.

But everything that is old is new again. Now we shop at three different supermarkets! To get the best prices or quality or specialty item or whatever.

Maybe they'll invent a super-duper-market or something like that next, and we'll go back to a one-stop experience.

> Residential districts in China and many former Soviet countries. Big concrete blocks, with the bottom floor lined with small stores. They're absolutely delightful places to live.

That really isn’t true. At least in China, the most common living arrangement in big cities is the gated apartment complex, their might be some retail on floor one, but it is usually on the other side of the gate, and the gate you can enter or exit from is often not conveniently located to access that retail easily (given my experiences living in Beijing). If they did away with the fences/gates, things would be much more convenient.

I live in a rural/suburban town of a few thousand. There's a tiny "downtown" thing branching off the highway with a deli, convenience store, pizza place, and some other small stores. Whole town is only designed for cars besides some sidewalks in this downtown area, but you can bike around just fine if you're fit enough for hills or have an ebike. I have a single family home that's about a 10 minute bike ride from this downtown. Almost all homes are single family, and a lot of farms. I think this setup works great.

Mixed use zoning is the answer. The American-style segregation of life vs. work needs to be a thing if the past. It might have made sense when most of work was industrial and thus noisy and dirty, but with modern office environments and services it just adds mobility costs.

> Residential neighborhoods don’t have the same peak density

This is only true in American suburbs. You have horrible one family dwellings only, and you space them far out on empty sections with massive roads between them.

This is the problem, and its also what is actually unsustainable.

I have always found that office-heavy areas of a city were pretty lame in comparison to denser residential. It does not seem like a big loss to me. Office centers tend to have some sandwich/salad lunch places that close at 4pm, some stuffy overly corporate happy hour bars, some dry cleaning places, some convenience stores and fast food spots.

Dense residential area tend to have the full range of services, more interesting restaurants and bars, more fun, more interesting. If people are spending more of their day there, I would expect a flourishing of these kinds of business. At the end of the day, some storefront owners will need to move to other areas to take advantage of changes in demand.

Cities are very dynamic things. They are constantly changing and renewing themselves. Neighborhoods come up and go down. There is no stopping it.

These characteristics are not true for most large cities. San Francisco for example suffers none of this.

The financial district, esp north of market, and south going towards embarcadero (Google, ...), is basically exactly this.

Yeah, I used to work on Market Street and SF is exactly like this.

So a single block represents the entire city? What about the thousands of other businesses that remain open and within walking distance?

Time to retrofit some of these office buildings into apartment complexes.

> Time to retrofit some of these office buildings into apartment complexes.

But why would people want to live where they don't want to work?

Because it's cheap and maybe the demographic that uses the "downtown" changes. Iirc The former Goldman? JP Morgan? hq in Manhattan ( moved to Newark?) Is now an apartment mostly occupied by 20-somethings that want to live in Manhattan

The big issue is how few cities reach sufficient residential density with enough occupancy over a wide enough area to begin creating that vibrant community. A few overpriced apartments towers near the CBD won’t get you there. I’d say the city I live in Perth, Western Australia has completely failed to cross that threshold and the current real estate environment is basically actively pushing back to prevent the urban core from ever getting there.

We may find we get the density and vibrancy, with all accompanying shops and services, but centered where we live rather than where we work.

I think it's part of the general swing back to a healthier work-life balance, and really ... that would be fantastic!

Thats also a reflection of the way american cities are laid out, with large physical separations between where you work and where you live.

Im glad to live in America, but the way cities are laid out elsewhere makes more sense.

> Those very things that make living near or in a city interesting for many people

Most of the time, the types of bars and restaurants that rely on office workers as customers are not going to be the type of bars and restaurants you'd go in your free time when going out with friends.

Is this true? Won’t the businesses go where the people are? So more organic shops and cafes in the suburbs? Or if the office building is turned into housing, all the people would be back again, and not just from 9-5, so the businesses would follow, right?

From the abstract,

“We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 32% decline in office values in 2020 and 28% in the longer-run, the latter representing a $500 billion value destruction.”

Is that value “destroyed”? Is it not unlocked to flow elsewhere? I’m genuinely curious about the dynamics of this.

You'd need to have already been equally* in residential and commercial, which are well siloed throughout all sorts of property-related industries, in order to break even and serve as a conduit for the transfer of value.

*Whatever optimal point.

An individual investor would need to have that balance to not lose value, sure.

But a society as a whole, is the $500B "destroyed"? Or is there a transfer from the property owners to the businesses that no longer rent the space? The NPV of those decreased rent costs may just happen to be about $500 billion, right?

Not to mention the value gained by all the no-longer-commuting workers.

Whether value was 'destroyed' or not depends on how you look at it. $500 billion dollars worth of assets were lost by the owners of the real estate; that value is gone, and it didn't go to someone else. It just vanished. The value didn't disappear because it transferred to someone else, it went away because the asset itself become less desirable and valuable to other people. You can imagine it being like if a farmer had a bunch of grain stored in a silo and it somehow went bad. The value of the grain is gone, because no one wants rotten grain; it isn't like someone else now has that value. Sure, the other farmers will sell more of their crops, but they still have to grow that food in addition to the rotten food... there is no efficiency gained or extra production in the economy.

The money spent on that commercial real estate is gone. Those big fancy buildings will have been wasted resources and effort.

there's more to it though. Real estate doesn't "expire" like grain. It can be repurposed, but it would require some capital investment.

As an analogy, the grains could be fermented and turned into spirits.

And as an addendum, the value lost in the commercial real estate could be potentially considered as transferred - let's say a business either gets a cheaper rent, or stops renting offices (after this is why these commercial real estate valuation is lowered), then those businesses saved money and thus that money saved is what got "transferred".

If NYC office space in a high rise, it cannot just be repurposed for something else.

like WFH capable apartments ....

Of course it can. What makes you think that it couldn't be remodeledd into living spaces? Buildings in a town flip all the time from residential=>commercial=>residential.

New York’s zoning laws.

Any developer worth their salt can have that corrected. Everyone in NY walks around with someone else's hand in their pockets.

Haha, would that it were actually true.

It could be used for residential, childcare, go karts (electric … I have done this on the converted 4th floor of a car park), wework style thing, storage/warehousing, restaurant, ghost kitchens, lightweight manufacturing. Lots of potential uses. Shelter for homeless would be my favourite if it can be funded.

Unfortunately New York’s zoning laws forbid what you’re suggesting. The new mayor is attempting to change them (though is facing resistance from the city council).

Yeah imagine replumbing for residential. I guess you could gut it to the shell. Almost starting over at that point.

It would make more sense to just wait it out until the building is needed again. Refitting offices is nightmarishly difficult and the result is sub standard compared to a new build.

From 2009 to 2015 I lived in exactly that. It was a high-rise former bank headquarters converted to residential. The conversion was done in the wake of the collapsing commercial real estate market after 9/11. Repurposing buildings is quite common in New York, and I expect to see more conversions like this in the future.

But it wasn't destroyed; it was transferred: WFH-comfortable residential properties went up in value.

Did they? Can we see that the entire value of these properties moved? Sounds like an impossible thing to measure. Considering most people already had space to work from home so they didn't move value anywhere. There is also the problem where the property which is most profitable for local governments has been the hardest hit. When you look at the maps that have been produced on this you can see some serious issues coming up where the profit centers of cities are all at risk while the ROI negative areas are expanding.

https://www.urbanthree.com/case-study/minneapolis-mn/

https://www.youtube.com/watch?v=7Nw6qyyrTeI https://www.urbanthree.com/case-study/minneapolis-mn/

> Considering most people already had space to work from home so they didn't move value anywhere.

This is a very debatable statement. Looking at my coworkers in the past two years, opinions seem to have been pretty evenly 50/50 split between people who had enough space/comfortable home to be able to work from home, and people who had no real good option to work from home (family situation, loud kids, living in a single bedroom apartment with no desk, etc). I know A LOT of people who specifically rented apartments that were only serving the purpose of "a place to sleep, close to the office", because these people's lives revolved around doing 90% of their stuff outside of their house (eat at the office, go out during weekends, travel, etc). These people got gutted when the pandemic hit and we were forced to work from home. I always wanted a large apartment (far from the office, so less expensive) at the exchange of a longer commute. I always wanted my own work/office area. And now that we're started returning to the office I applied for (and was granted) fully remote work. However I know that if this is going to become the norm for a lot of other people, apartment layout and demand is going to change.

My wife is also working from home, and we're expecting a baby. We're likely going to buy a new house and one of our specific requirements is going to be two separate offices for both me and her, plus a room for our baby. This kind of stuff wouldn't have likely happened before.

Du no about the US, but covid caused England and Wales prices to increase in rural areas far faster than urban areas

https://www.theguardian.com/society/2021/jun/20/rural-house-...

But there are many more of those.

Maybe total value still decreased, because people no longer pay such a large premium for the limited city center space.

As such, total money paid on rent is less.

Total money spent on card catalogs went down since 1980. Does that mean value was destroyed?

In a weird coincidence, I have been trying find a card catalogs or two for home storage for a couple months. These are often incredibly well-made solid wood furniture, and yet most libraries worldwide have just been scrapping them. (Their size and weight makes them extremely difficult to ship - buyers/sellers aren't well aligned.)

So, in short, yes. We also got new value, but tons is being unnecessarily destroyed.

Imagine someone were to invent a miracle power source that could be produced easily and cheaply by anyone and allowed all vehicles to be powered for free, completely obliterating the fossil fuel industry. In this situation, would you say value was created or destroyed?

If we just let the fossil fuel infrastructure rust/sink? Lots definitely destroyed.

Perhaps material-neutral "value" is not a particular good measure of anything.

While I agree value has been destroyed, rents should fall as a result of lower property values, and tenant companies will have more money to deploy to their businesses as a result.

A net negative to the economy to be sure, but (literal) rent-seekers aren't the only ones in the equation.

No value has been destroyed because the land and buildings are still there. There’s less demand for them than before so they can charge lower rents and the property will sell for less. But that’s because of better other options. The production possibility frontier has expanded, not contracted.

As far as intrinsic value, you are correct, the buildings are just as functional as ever. But when it comes to extrinsic value, the extra value we place on something because it is desired, that is where value was lost.

So good riddance? Do you really think someone who was able to buy real estate in Manhattan needs a handout?

Also the money didn’t disappear, it went to people smarter or luckier than them who used to own the place before. Money doesn’t disappear.

That's not how market devaluation works. The "money" (paper money value) definitely was disappeared. It doesn't flow to someone else. Markets don't work like that.

If I buy something for $100, the market value increases to $150 and then drops to $50, I've still lost $100 from the peak on paper. It didn't go to someone else.

The folks holding those assets didn’t have the money either though, until it was time to sell and they sold.

And the people buying 'gained' the difference, by not having to pay it out to gain the asset.

Not sure how it works in the US but apparently in the UK it’s the banks that make up money when giving out home loans and such. So in 2008 I guess fake money was made by banks, to over value shitty new houses, and then investment entities bought these fake money loans as investments. Turns out the entire system was fake and it just collapsed.

The way I see it this is not the case now. Real money was handed over to buy these properties (noted by how many homes were bought for all cash). Money that was redistributed, printed by the government during the pandemic but has now been in proper circulation (thus as real as it gets) and which was paid off to a bunch of property owners who now have this as actual cash (or SPY holdings).

The value of the building going down on paper is only significant when you denominate it in some currency, like dollars, or hours of labor. When the value of a thing goes from $1000 to $100, the people who lose are the holders of that thing, the people who win are the people looking to buy that thing, they can now do so with 10 hours of their labor rather than 100.

They don't gain that value. They gain a savings yes, but they can't turn around and sell that thing for 1000 to make a profit.

I wasn’t making a judgement about whether the loss was worth it or not… it might create more value in the long run. Sometimes a short term loss is worth it.

Always remember teachers pensions and nurses pensions and librarian pensions are tied up in realestate. Saying "someone" like it's a single person is not how investing works. My mother's pension lost heaps. And now yes.. she could use a handout.

yeah tied in BS contracts with unrealistic rental values in NY expecting a CVS and a Chase bank on the same building. In every Manhattan building

The pension fund could have invested in VOO. No one forced them to invest risky investments.

That also depends upon the fact that how much of that $500 billion was the upfront investment made and how much was actually due to pure speculative pricing.

Isn't it more like wheat produced at a cost of $100 was selling at $500. But it can only sell at $150.

>You can imagine it being like if a farmer had a bunch of grain stored in a silo and it somehow went bad.

It's fundamentally different, practically the opposite.

Paper losses are like a farmer realizing that the grain in his silo is bad. Knowing this when you were oblivious before is a good thing, whereas the grain going bad is obviously not.

Once you start regarding bad news as a loss, very bad stuff happens. In some contexts, we'd all agree. "Shooting the messenger" is an age-old cliche for counterproductive use of power, right?

Just saying that $X billion dollars were "lost" by market price fluctuation is dangerous, because it suggests it can be weighed numerically against real things and real peoples' lives lost.

If you were a CEO or a politician or someone powerful, would you justify destroying one warehouse or home or hurting one person, in order to avoid, say, a trillion dollar "loss" of paper value in some assets?

I mean, don't you think people do this, directly or indirectly, and it's wrong?

Stock market declines are called "corrections" for a reason.

>The money spent on that commercial real estate is gone. Those big fancy buildings will have been wasted resources and effort.

Maybe, but nobody can say for certain what the world will look like in 5, 10, 20, 50 years anyhow.

I wasn’t making an argument about the overall benefit to society, which is why I said it depends on what you mean by value being destroyed. It might be a long term benefit for society, but that doesn’t mean value wasn’t destroyed.

You're saying that they were unrealized gains, not losses.

In some cases, building something that nobody will use is still a loss. It still cost money to build a building, and if the one paying for that building doesn't recoup the cost the it's a lost.

Beyond that, of course you're right. It's unrealized gains, not a loss.

> Once you start regarding bad news as a loss, very bad stuff happens.

I like this. It's insightful, and stated in a plain way.

And equally we can say, once we start regarding good news as a gain, very bad stuff happens.

The idea of "confidence" rather than measurable, tangible facts as an economic basis has been the road to many bad things. In some ways confidence and pessimism can be seen as the ability to ignore reality. We've been inventing ways to delude ourselves in western economies for decades. For example, film and record companies counting copyright infringement as if it were an actual loss, or Twitter over-counting its users as a kind of corporate egotism.

What might really help our societies on multiple levels is a return to fact-based economics, instead of what is essentially information warfare directed at pulling off ever more audacious confidence tricks.

News is gain (of knowledge) good or bad. bad news is an opportunity to fix some weak links. Good news is an opportunity to reduce leverage, replenish reserves.

Confidence is useful. It reduces volatility in the market.

We're using two different senses of a word that seem irreconcilable. You offer a very narrow, statistical definition that pertains to the goodness/accuracy of information. I am using a psychological term that reflects the feelings people have irrespective of ground truths. These are almost opposite (at least incompatible) interpretations. And yet semantically I suspect we completely agree - acting on good information is good, and acting on bad judgement is bad.

As I am sure you know, a "confidence trick" is a way to defraud another by influencing their (psychological) confidence (or pessimism) against their better judgement and in spite of the objective facts.

Confidence is short for confidence interval. Measurement improves confidence (tightens the margin of error).

Lower rents or building values means businesses leasing/purchasing those buildings have more money to invest elsewhere. It could be argued that the capital will be used to drive a real ROI… something that rent does not provide.

That's in the long run though. The "destroyed value" was an evaluation based on future rental income. In a way the valuation puts a price tag on the assumed future return on purchasing the property. Someone else is now not paying that rent, but they didn't get a lump sum transfer of that valuation in cash.

So companies that save money by not renting as much real estate and companies that supply equipment for WFH did not appreciate in value?

Not at an equal value to what was lost. Money was spent to build all those buildings, and all the things inside them, and all he services that kept them running. That money isn’t just gone. Plus, all the companies that relied on servicing commercial real estate depreciate in value.

Do you have any numbers to back it up or just making a guess? From 2020 to now Apple alone is up more than a trillion dollars in value what percentage of that was driven by wfh trend? Apple is not the only beneficiary.

The value was transferred to the companies who no longer pay that rent, no?

And the workers who don't have to spend all of that time commuting. There's a lot of value in that time. It seems like a lot of value was added elsewhere, just not for commercial office real estate companies, but that's the nature of real estate in the US.

I don’t know if like the spoiled grain analogy.

If my stock portfolio was worth $1000 yesterday and is only $800 we don’t say the $200 was destroyed. I have the same number of stock. It may go down further, but it can also go up to say $1100 tomorrow. Is this a new being value created, or only capricious market pricing things differently?

Until I sell, there is no real gain or loss. And for the farmer, if the grain goes bad it’s not temporarily, it will never recover. This might have been a better analogy if the underlying real estate was destroyed (uninsured and fire, etc).

We do say $200 of value was destroyed when your stock portfolio goes down $200, though. If you think about it, it is the same thing… that real estate value is owned by some business that has shareholders (either public or private)… the $500 billion in value that was destroyed came from the shareholders of the real estate companies. It is the same thing.

> [the value] went away because the asset itself become less desirable and valuable to other people.

That view on "value" is inherently fickly. In case they never sold their buildings, you could also argue that no value had been lost. They still have the building after all. Their speculation has a different calculation behind it now, but that's normal - speculation RoI is not guaranteed.

More comparably grains market priced dropped. Thus grain in silo isn't worth the same anymore. So we lost food value? Even if the same calories and same utility is there still?

Some utility was lost, more value was lost. But in reality economy only lost some paper valuation, something entirely imaginary...

I don't think this analogy is a very good one. Grain that has gone bad has close to zero utility. But office space in a city has tons of utility. It could be converted to residential space, for example. A better analogy might be a sudden shift in tastes that caused the demand for grain to drop. The grain could still supply markets for animal feed. And the farms that planted grain this season can be converted to some other crop.

I assume in your analogy the general population is still buying the same amount of grain, so losing a silo of grain to rot is a pure loss to the farmer, and in a way is a loss to grain buyers (prices have to go up slightly).

But in the office space scenario, less office space is being used overall. This means that yes, landlords are losing the value of their investment, but (former) tenants are gaining access to cash flow that would have been tied up in rent and maintenance. So value has not been destroyed in the same way it was in the silo example.

I don't know if this is a good or bad thing, just pointing out a material difference in the two things you're trying to analogize.

>Housing can’t both be a good investment and be affordable

People see the extremely high valuations of some things like housing and business locations as a good thing. Instead I mostly see them as asset inflation, and the decrease in their values as a good thing for the actual products produced by an economy.

My theory is that companies are keeping the same office space but saving a ton of money on snacks.

The workers think they're getting a good deal but they really traded gas money for snack money. /s

They are exaggerating it by not including the increases in value elsewhere, but there is "value" destroyed. The flow to other places is not as high as what was lost.

I think this is due to the perceived value of proximity not keeping up with technology. The "real" value of proximity fell as technology improved, and that was exposed during the pandemic. It's more of a correction than outright destruction, but it's not wrong that the overall asset class lost value.

It will be interesting to observe what this means for growth of cities. In the last 100 years, city sizes increased while staying within Marchetti's travel time budget [1] (1 hour for round trip) thanks to higher speeds available through motorized transport. Now that technology is redefining proximity once again, I wonder what factors will continue to encourage/discourage people to live in dense cities.

1 - http://www.cesaremarchetti.org/archive/scan/MARCHETTI-052.pd...

If we look at the most extreme case where everybody had an office or at least a desk and then everybody moves to homeoffice 100% then it massively decreases then demand for property in general. Everybody already has a home. Even if more people buy bigger homes then or rent a personal office, lots of former office space will be converted for other uses.

Real estate people tend to borrow a lot of money. Minimum 70% LTV = 3x leverage = a 33% decline wipes out all their equity.

And especially in big cities the "high-quality" real estate is usually break-even and all profit is made on appreciation, so any drop in income might mean some of them can't hold the property.

If they have to sell their properties and take a huge loss, it doesn't really affect you or me - it just means a different group of rich people will become the new landlords. But the old landlords won't like it, and it probably qualifies as news.

Yes value was destroyed by these deals/builds not properly accounting for risk of a shift to WFH. Basically all the companies involved lit money on fire to the tune of $500b. Other areas benefited but this was pure vaporization of money.

So far, I suspect every dollar lost on commercial real estate has been gained on residential.

In many cases, the uplift in residential value is directly attributable to WFH (e.g. where a home office or more rural property becomes more desirable.)

How does thus work? I still live in the same place as before. If anything, less people want to live here because proximity close to work is less important. Some places gained value for sure, I think Bend Oregon is a very notable example. I don't think it is 1:1 as not everyone up and left where their office became a ghost town.

Living in a resort town in Utah, I’m fairly sure a large portion of that value was transferred to Mountain West residential real estate

Pink cars are all the rage and sell for +20% One day pink is viewed as bad and now blue is the color to have. So now blue cars sell for +20% and pink sell for +0% The extrinsic value is arguably transferred, but if you are holding a pink car, you're down in value that was just lost due to a loss in extrinsic value. A"transfer" is a bit tortured imo because the change in value was not 1:1. Some WFH areas gained a lot more comparatively than other locations lost, and vice versa

House prices in areas people would rather live have all gone up. Those houses also play the role of offices 3-5 times a week.

I’m not sure if it makes up for the loss in commercial real estate though, but I’d say some destruction of value and some transfer of value.

And if everyone quit smoking it would cause the "destruction" of billions of value in the tobacco industry.

Exactly. Until someone starts to calculate the compound healthcare and welfare costs.

Generally the tobacco industry does not pay those costs. Hence, relative to the tobacco industry, it would be a vaporization of value

I take from the downvotes that people thought this was serious. Its absurdity was intended to show how misleading the use of the word "destruction" is when talking about economic costs derived from things that are no longer needed. Being more healthy, or more efficient, is unequivocally good!

I think the whole thing becomes more clear when you remember that price is an indication of how desirable things are relative to other things rather than an indicator of intrinsic value.

If you have an asset which used to be desirable but is no more, its market value is indeed just destroyed and not transferred. It doesn’t necessarily impact the price of other goods.

I was about to comment on the same passage. The value has moved into housing real estate that can serve as a remote working place *and* into the less quantifiable quality of life improvement. This is the same bias used in GDP calculation vs happiness, it's a huge topic, look it up for more information.

One way of looking at the "destruction" of the value of the property is based on Net Present Value of future rent payments. Let's take one hypothetical building, its owner and its tenant.

The market value of this building (not its construction cost) is the Net Present Value of future rent payments to be made by a tenant to the owner. There is a scheduled, anticipated transfer of value from tenant to owner based upon the agreed market rental value of the building.

When the agreed market rental rate declines, the amount of value to be transferred from tenant to owner declines and consequently, the present value of those future payments is lower. This is the basis for journalists or commentators to say that value has been destroyed. But, the value hasn't been "destroyed"; it has been transferred to the tenant in the form of the net present value of his rent reduction.

Perhaps one could say that the value was adjusted downwards. It wasn't an actual thing that was destroyed - rather, a dynamic equilibrium has changed. "Value was destroyed" has all the wrong connotations - it sounds like something somebody had a moral right to was maliciously, well, destroyed.

The value of buggy-whip stocks was certainly destroyed with the advent of the motorcar.

I'm curious to see how this plays out in the long term since data they're using is from 2020. In late 2020 I remember reading tons of articles about how people were fleeing the city causing apartment rental prices to plummet. Now, two years later, most of my friends who rent are paying as much as, if not more than they were paying pre-covid and the apartment buildings I can see into look as full as they ever were (anecdotal evidence, I know).

Personally, I don't see a way for commercial prices to come back if WFH is here to stay, but a lot of people are incentivized to think of a solution and I've been surprised before. I think we should get another year or twos worth of data before we start calling it an apocalypse.

Here’s your data; Covid definitely slowed rent growth during 2020 but throughout 2021 and 22 it looks like it’s back in full-swing, with >15% YOY in 2021 and similar growth predicted for 2022.

https://www.apartmentlist.com/research/national-rent-data

Rent is way up in Brooklyn as of late 2021. I decided to leave nyc because renewing my lease came with a significant rent hike to the “pandemic deal” I got.

Commercial-wise, I can’t see it recovering to pre-pandemic levels. I’m not seeking an office out and I know many friends / former coworkers that are happy not in an office

I’m a believer in reversion to the mean, and I think that’s what we will see with the office market and work from home. The technology to work from home existed before the pandemic. Why didn’t it take off before the pandemic if it works so well? We didn’t suddenly discover a new technology here. The use of that technology was precipitated by a transient force, and when that force is removed completely, things will return to the previous equilibrium. It will take years for the mentality to revert, however.

That’s my take. Smart investors will acquire office properties during this time.

respectfully disagree. knowledge, just like innovation cannot be reverted. it hadn't taken off before the pandemic since we were living under a purposefully driven illusion of the necessity of office work.

just like food delivery, employers, just like workers now have the knowledge that wfh works. thus workers will always have the leverage of having competitive companies that know it does offering it.

> Why didn’t it take off before the pandemic if it works so well? We didn’t suddenly discover a new technology here. The use of that technology was precipitated by a transient force, and when that force is removed completely, things will return to the previous equilibrium.

Not necessarily. It's entirely possible that working from home has always been better but that there was enough friction preventing a move in that direction that it didn't happen until covid forced it to. If that's the case, then we don't expect a reversion because the friction preventing the initial adoption is gone.

Well some of that is also regional, as the "forced" was a region by region, and job by job type of impact.

For me, my employer only had about 3 mo's collectively from 2019 to 2022 where full time work from home was even an option, and zero months where it was required and the offices where shut down.

I think there is a perception that all employers, everywhere were required to go full time work from home, that simply is not the reality

A lot of companies/managers couldn't conceive of how to run a business remotely before the pandemic. There were a few that were doing it, but lots of people had beliefs that caused them to not be able to see how it was possible. Due to the pandemic everyone had to experience how to do it, so the business world got a management crash-course in it. That dropped a whole lot of mental barriers.

That's not what "reversion to the mean" means.

It is specifically a concept tied to repeated observations from a -random- process. That is, a process in which the values fluctuation over time (due to inherent randomness), but the -fundamentals- of the process (and its probability distribution) remain fixed -- along with its mean value.

What they're saying here is that WFH has caused a seismic shift -- and hence, a drastic change in the fundamentals of the process. Their whole point is that we're seeing different valuations in 2022 than in early 2020, it's not due random fluctuation -- its because the fundamentals of the process have changed -- along with its mean.

By definition, "reversion to the mean" only applies if ... the mean is fixed.

I am not entirely convinced WFH will stay the norm either. Certainly more normal, but I think the HN crowd might be uniquely positioned to exploit the situation. Your average office worker doesn't usually have the agency to push back on office policies at the best of times, and you already see plenty of pull back into the office.

The other part of the equation is the more common hybrid arrangement. If you still have to come into the office twice a week you get a similar dynamic to traditional in-office work.

I think we are currently underestimating the desire to get back to the status quo and overestimating our leverage long term. Right now is a very unique time, sure to have lasting impacts, but I don't think it will stay like this.

Covid is basically over and it is still like this. It will probably stay more like this than it will revert. Global paradigm shifts don't usually revert.

The less number of days workers go into the office, the less companies can justify renting the space and paying for the supplies. I think companies will begin to either go 100% remote except for on location workers that have to be there such as data center people, and others will try to go 100% back to office, and the latter will lose because the economic incentives are stacked against them. Increased cost, including a premium on talent willing to commute, make companies that do this less competitive. Unless you believe the water cooler has some property that boosts productivity significantly, in which case you're right. But I doubt it.

I wonder sometimes if the future of office work is something like a Star Trek Holodeck. Most people won't have one at home and will commute to a local remote work office used by people working for various employers.

I don't know where you live but covid is not over here.

Not here, either: Folks are still getting it and folks are still dying from it. We simply don't have as many restrictions right now - though we are getting those again. Yesterday, some places in California are mandating masks again and I still have to prove I'm Covid-free to visit family in the US, and it doesn't matter than I'm a citizen.

>Not here, either: Folks are still getting it and folks are still dying from it.

If that's how you measure it, then covid will NEVER be over (People are still dying from flu every year)

Pandemic is over. COVID19 is never leaving us.

It will never be over. We just have to live with it and move on with our lives.

And I shall, but it turns out my reality isn't the only reality.

So the disease isn't over. And I hate to break it to you, in case it isn't obvious by now, it never will be.

But the panic and response are over, the public has accepted it as a part of the world now, the world is just the world and life is just life again.

I am well aware of the long term outlook of it all. I am fully vaxed, living life as I always used to, and I am all for returning to normal now that we have done all we can with vaccinations. But society globally is still changing and being impacted very seriously by the pandemic and will be for years yet.

Keep in mind that both places, people and policies change state to state, country to country. You are talking like your experience is the only possible one. Where I live is seeing the most deaths it had the entire pandemic, we have still removed all restrictions but that doesn't stop people changing their behavior. Some places are still having lockdowns. Some borders remain shut. You get the idea.

I actually worked for a company pre-pandemic that had this epiphany and almost went fully remote just based on cost. The reason they didn't was because there were people who couldn't work from home for family reasons and some who didn't want to.

We may find that being able to work remotely becomes a commodity the employee can offer the employer. As it's certainly still true that working from home doesn't fit everyone and we still haven't solved that I don't think. Renters can't build on an office they don't have for one example, and I don't think it's reasonable to expect an employee to work from their living room. But maybe co-working spaces will become more popular for the edge cases.

I think co working spaces are going to become popular, but they'll likely get rolled into the hospitality industry. I doubt you'll see pay by the month office spaces, what's probably more likely is bring your own laptop cyber cafe style settings that provide food or drinks.

When the "can you work from home" question gets a high enough incidence of "yes" answers, you'll see diminishing returns on renting office spaces. People that can't answer "yes" to that question will be priced out of the market.

One factor I don't see brought up often: many organisations can't go back now. They've hired too many people to fit.

The issue isn't so much work from home, which is not the ideal working arrangement for all, it's the commute to a central location. What has happened is people have realised the essential stupidity of it.

The future will be much more mixed and more sensible. Some people will work from home and some people will work in offices, but those offices will be much closer to where people live and people who need to work together will tend to live close by, or at least have the opportunity to. Essentially we'll see a lot more smaller offices in the suburbs.

You couldn't design a worse system of everyone having to commute to a central location, with infrastructure that is always overloaded at rush hour and underused the rest of the time.

The key to that arrangement surviving has been that the impact is all on workers and the convenience payoff has been for employers. The pandemic opened people's eyes and they're not going back.

I hope you are right, but I think America has hamstrung itself already with it's historically terrible zoning bylaws. Rather than end up with office parks again, to enable this type of arrangemen you need better public transit and zoning that allows a bit of commercial intergration into suburbs, so that never going into the city is an attractive lifestyle choice and as workable as it can be.

I live in a suburban desert, and if I had to work at a sattelite near here, I wouldn't be unable to do a lot of things I currently do during the week because it just isn't here.

Wearing my Tinfoil Hat: I see a looming, hypnotically-self-induced recession, manufactured precisely so that workers (incl. those who tend to hang on HN) feel more insecure and thus feel less empowered to say "No" to back-to-the-office mandates, thereby rescuing the rent-seeking classes from a Covid hangover. The timing is just too convenient...

(Only half joking...)

A potential recession is brewing in the news and likely to take some of the wind out of employees feeling of agency and security. Maybe employers use that to pull people back into the office or maybe it turns out to be the perfect opportunity to ditch their rentals.

IMO the hybrid arrangement is because office leases tend to be long term commitments. Since it is already a sunk cost in a sense the hybrid model has value right now.

I just can't see that the hybrid model is the long term equilibrium. The office either has a competitive advantage or it is a liability that can be trimmed in cost cutting measures. Long term, firms will either push the edge of the competitive advantage of the office back to everyone going to the office full time or cut the cost completely. Maybe it even depends on the department within the firm or across firms but the hybrid model is just nonsense to me. A cascade of punting a decision down the road so leadership doesn't have to really decide right now while we are all stuck in these pre-2020 commercial leases anyway.

That's one take, it's not an unreasonable one.

The internet was always going to enable people to perform information work remotely. It was all a matter of the process and how long it was going to take. Covid accelerated it, but it was already happening. There was no equilibrium before, just a lot of resistance and legacy social structure keeping the inertia going. With covid, that resistance was shown to be mostly substanceless, and now the inertia is preventing going back. In the end, there will be a premium paid on any work that requires someone to be at a specific location, and jobs that don't require it to be able to do the job itself won't pay that premium.

That's my take. It's basically the opposite of yours. I would not invest in office properties.

I think the opposite. Currently there is very little remote work ecosystem, but there is a huge office ecosystem. With remote being now a very real option for so many people, businesses that facilitate remote work will spring up (helping people relocate, coworking, help with foreign workers, payments etc). Traveling hasn't even resumed, and as the pandemic is removed and the war ends, people will have more options to reconsinder where they want to live.

Remote is also naturally self-reinforcing because partial-remote degrades the value of offices.

> Why didn’t it take off before the pandemic if it works so well?

Because hopeless middle managers (toxin or cancer? [1]) like their empire to be outside their office doors in cubicles. Hopefully the past few years has started to root out these sociopaths and make their incapability clearer both up and down the management chain.

[1]: https://www.slideshare.net/bcantrill/surge2013/2-Software_En...

Totally agree. It will be a few years until things really shake out and we know the actual long term trends.

Nothing fundamental changed between 2019 and today.

Section 3.4, "Identifying the Persistence of Work From Home", is weird. They are trying to calculate the persistence of work from home based on data about what rents on high-quality office space did during the pandemic:

"A key parameter in the calibration is p, which governs the persistence of remote work. 13 We identify this parameter as follows. We assume that the economy transitioned from the no-WFH expansion state (the E state) in 2019 to the WFH state and a recession (the WFH-R state) in 2020. We compute the model-implied return on the NYC A+ office market in this transition (using the A+ calibration)."

Why this should be a valid predictor for post-pandemic / endemic periods is not clear at all.

These guys have a data set of office rental data, and seem to be trying to infer way too much from it.

I'd love to see office spaces transformed into other useful spaces: Parks, cultural centers, entertainment, residential space, etc. Some office space could still be used as a coworking space for people who don't want to work from home.

The land didn't disappear. Only the need for a specific use has changed.

At some point that office space will get converted to housing and things will balance out again. Don’t feel too bad for those small organic food shops because there are not that many of them, most of the office workers were eating Subway or McDonald’s - if they could afford it. You get a lot better options when your working remotely. I know where all the farmers markets are now. My grill has never had so much action.

I'm hearing it already start to reverse in Sydney at least. So a bunch of people bought houses up the coast thinking they could work from home after covid pushing value of houses up and commercial down. But turns out people can't be trusted and and companies want people back in the office and they can't sell these coastal houses for same price they bought them for. Anecdotal of course. I have no data.

All of the non tech people I know in Australia are now back in the office. I think we might see a halt in new office construction, but existing offices do look like they will eventually fill up. And a lot of the big names like Apple and Tesla have signalled that in office work will resume.

I'd like to see a research of WFH impact to people's spendings. Many households have to pay extra for more space to have a home office while companies pay less :)

As with many things, averages are pretty worthless.

You mostly have two primary costs.

- Possible upgrades to living space so that you can "lend" your employer an office.

- Possible significant time/cost savings by not having to commute.

Mostly these aren't borne by the same people.

It's just anecdotal, but I found myself unintentionally saving money like crazy when I was WFH during lockdown due to not selling out every day for fuel, parking and buying lunch. But then again I'm someone who always pays the 'disorganisation tax'. I'm sure people with more optimised spending (e.g. catching the bus, bringing their lunch in from home etc.) didn't see as much of an effect.

Well... I need to rent a property with +1 bedroom to WFH. It is a substantial family spending.

There are a lot of insolvent investors out there that have been papering over this somehow. When the music stops it will be insanely brutal.

Redevelop the office space as residential space. Our cities are flush with office space but are squeezed for housing. Sounds like a win / win.

Get rid of roads while we're at it. There are better and more efficient ways to transport goods into the city.

Wait, what?

Ask yourself how much infrastructure exists only for the purpose of commuting. You'll be amazed by the statistics.

There's also lots of interesting satellite data about how clean the air in cities world wide got when COVID lockdowns started. [1]

We don't need roads in cities. And definitely not multi-lane roads.

[1] https://maps.s5p-pal.com/

You got to elaborate on that if you want people to take you seriously.

You’re so disconnected from reality. Ask yourself how many people are unable to work remotely. If you can’t think of enough examples to justify roads, go outside more.

Are factories now built downtown or am I missing something?

Do you think that cities of the future rely on cars or on more efficiently scaleable means of transportation - like trains, subways and trams?

> Ask yourself how many people are unable to work remotely.

Please elaborate.

Personally, I don't think there's any elected mayor on the planet that has "moving more factories inside the city" on their agenda.

Note that I was specifically arguing about office spaces. And everyone in an office space can work remotely.

I'm not arguing about politics, I'm arguing that technologically there's no need for office spaces inside the city. It's a societal expectation that doesn't make sense anymore and isn't necessary. What COVID showed us is that most if not all of the tasks that were done in offices before can be done remotely just fine. Additionally it showed us how quiet and livable cities can get when there's no traffic jam of commuters.

> Are factories now built downtown or am I missing something?

Plenty of other roles that can't be performed remotely, e.g. plumbers, hairdressers/beauticians, dentists, shoe/clothing store workers, therapists, teachers (technically possible, just not desirable in the last two cases).

But that's not even the limiting factor for public transport: the landscape of extracurricular activities for children shifted.

Parents of children too young to cross the whole city on their own have a total of 3-4 locations to visit daily. Doing that via public transport quickly becomes tedious.

I think what's missing in your argument is the causality of the problem at hand.

> have a total of 3-4 locations to visit daily

I'd argue that the problem is not roads themselves, the problem is that cities are built around roads and cars. If cities would be organized with being road-free in mind, the problem you're describing wouldn't exist.

A lot of cities in Europe have changed their way of thinking how to design a city these days, and try to evolve the downtown areas so that they're closer together and easier to reach via public transportation and/or by foot. Just some examples that come to mind: Venice, Granada, Amsterdam, Heidelberg, Nuremberg, Rostock (and soon probably Mainz and Stuttgart, as they're actively working on it).

What these cities have in common: They changed their prioritization from multi-lane roads inside the city to a sustainable park&ride model that embraces cheap and regularly available public transportation, and combines that in worst case (when they don't have trams, busses or subways) with something like rentable bikes provided by the city. In best case, you'll have something like Amsterdam or Venice, where everything is not built for cars but for all other modes of transportation, except cars.

And some might argue that those cities have working plumbers, hairdressers, dentists etc, too. They seemingly can still work without having a multi-lane highway blocking the skylight over their houses. Why do you think is that the case?

You’re missing the fact that Americans like being in their own car and American cities are democracies. Any attempt to remove roads would be voted down. Finally the reality is American cities don’t have good pervasive transit options, reason being even if you built them people prefer their cars. NYC is a very notable exception but I would point out NYC is also covered in roads.

They are pretty rare in European cities (that I know of). They do exist, but in the largest cities, and are limited to the main arteries.

I grew up in New England and currently live in Denver, but have traveled to over 20 countries and lived in both Italy and Croatia. Europe is a very broad statement so maybe you are talking about some outliers, but roads are not rare nor are they limited to main arteries in any of the locations I traveled.

Is public transportation better than most places I’ve been in the US? Without a doubt - it’s not even close. But roads are just as relevant.

You need roads to move irregularly shaped construction equipment.

The solution isn't to remove roads. The solution is a London style congestion tax.

Which planning economists have cried out for, for ages.

Fun fact: roads predate cars.

This is what will eventually happen.

Unfortunately given the way some recent dystopian trends have been going it would end up that you simply have office dorms and live in the same building as your coworkers.

No way, if anything there will be expensive apartment style 2br in the same building with the office, with very expensive price or rent rate that only c-levels can afford it.

Then there'll be housing complex or apartments for workers 1.5 hours away from it with inefficient public transportation.

Definitely but first there will be a lot of lose/lose. Commercial real estate first has to collapse, taking people’s savings with it. Redeveloping is not a very fast process, especially since the prime places for the development are in highly regulated cities. In 20 years-ish you’ll be proved correct.

I know. We as humans prefer steady states because we can reason about them. But transitory periods are chaotic and unpredictable, and inherently painful for humans in many ways. I’m not trying to diminish the profound pain a structural remake of how we live and work will be, but I also think given the economics of maintaining a large real estate footprint vs offloading occupancy expenses to employees makes it inevitable. I think prescient commercial real estate holders will move ahead of the curve and being repurposing now. Note that most regulated cities allow for mixed use development fairly readily and in fact have been encouraging it. Hopefully there will be more forward thinking and preparation - but history indicates we don’t do that well.

wait - the managerial class will lose all that equity they put in their homes!

on edit: somehow put learn instead of lose.

This is just the beginning of a wider shift that will destabilize domestic economies worldwide, particularly in well developed nations, if the trend continues.

It's not just urban office buildings. It starts there, then it leads to deurbanization, increased populations in less urban areas, a more flat population distribution. Why live in a city unless your job requires it? All the other perks of a city only really apply if you actually need to be there to sustain yourself.

It will lead to several big cities filing bankruptcy, most service businesses in dense cities going broke, city services unable to continue to function. Information workers are the core of a city's economy, all service oriented businesses cater to them. Once they're gone, the service workers go too, it's a cascading process of the collapse of big cities. When they said the internet was going to revolutionize humanity they weren't kidding around.

Overall it will be a good thing, but the process will be very painful.

> Why live in a city unless your job requires it?

Huge variety of shops in walkable proximity, great public transport network, vibrant cultural life, plenty of opportunities to socialise.

Why would you want to live outside of a city?

>vibrant cultural life

It's so funny that you say this. From my perspective the vibrant cultural life happens outside of the city. In the city everything is permitted and controlled. If you want interesting stuff, you have to get out of the city for it!

I do live outside of a city, and I do it for the lack of traffic, less crime, lower cost of living, being surrounded by the natural outdoors, and less stressful culture.

But you missed my point. All those perks of living in a city are great, if you need to be there to earn what you earn. without that, the high cost of living simply isn't justified. Even if people want to be there, they'll make financial and economic decisions. And once those people start leaving, all those shops and bars and bodegas and what not that cater to them will go belly up. Then their owners and employees will leave. There goes your vibrant cultural life and opportunities to socialize.

The flip side is that you'll find more of those things in less densely populated areas as this shakes out, and cost of living will rise as well outside of cities, but not by nearly as much, because the diaspora will be spread out.

> But you missed my point. All those perks of living in a city are great, if you need to be there to earn what you earn. without that, the high cost of living simply isn't justified.

I am not missing anything. I just deeply disagree.

City life is enjoyable in and of itself. I don’t live there because I have to for my work. I live there because I find it inherently better than living somewhere else.

If I was living in a normal city and not the capital of my country, it would not even be more expensive than living in the countryside. It would probably actually be cheaper. Gas is expensive here and our cities are built like proper cities.

I think you are projecting your value on the situation and conclude that cities are doomed. Personally I think we are just going to witness a shift away from cities where life is expensive towards cheaper cities.

That's a part of it too, moving to smaller cities, but that's still a massive economic reshuffling.

I think you're grossly overestimating the number of people that live in cities for reasons other than economic opportunity. That is the entire value proposition of a city, that was the driver that led to urbanization in most countries as they developed. You might be willing to pay 3x as much in rent for the same pay because you like the local chicken place, but I doubt most of your neighbors would make the same choice as you when given the opportunity to reduce cost without reducing income. And when those people leave, all those perks of city life go with them.

> That is the entire value proposition of a city … 3x as much in rent for the same pay because you like the local chicken place

We are going in circle. Economic opportunities are clearly not the entire value proposition of a city. It’s a very convenient way of living. It’s not about a chicken place. It’s about walking your children to school, being able to go to conferences, to see plays or attend a concert. It’s also just nice to not need a car. It’s very advantageous to just live close to others.

I don’t know where you get your 3x from by the way. An average city rent here is only 20% to 30% more expensive than living in the countryside. We are not talking about San Francisco.

We all know the big dreams of every 16 year old is to run away and move to the country ;)

Just mention this as it is not all economics.

I disagree. Living in a city is way better than living on the countryside.

- access to a large airport to go on regular holidays easily

- better health care coverage, more doctors, more specialists

- cultural access

- more diversity and more colorful services and products

- better public transportation

I have access to a small airport that's an hour flight to a large one. The logistics of going somewhere for leisure are only marginally more difficult for me, and even easier since I don't have to navigate a small city within a city with a million people in it and traffic to get there and all that. And for the most part I have plenty of leisure around me, I don't have to fly anywhere to see wide open spaces for example.

Health care is a special exception for me since I live under an hour from a couple of big hospitals and I live in a state with a lot of hospitals all over the place. But all that really shows is that such a system can be made without heavily concentrated population centers. That perk is a result of how things are now, not how they have to be.

Cultural access... I see this mentioned alongside diversity and what not, do you mean brown people? If I were right and there were a large deurbanization trend, wouldn't it follow that the diversity would go with the diaspora, since the diversity is just people?

Public transportation is largely a solution to problems created by cities. You don't really need a public transportation system in a less densely populated area.

I am talking about niche hobbie stores, d&d clubs, anime conventions, gay clubs (that are enjoyable as a hetero, too), authentic Vietnamese restaurants, Guangdong, Sezhuan, Taiwanese restaurants, 2nd hand stores, unique cafes, small specialized book stores.

And yes, also "brown" people. But also Japanese, Korean, Russian, Indian and Brazilian people.

Less densely populated areas rarely pay for their road maintenance costs. It's actually quite unsustainable. That 10 mile road leading to just a few houses costs way more than is brought in by taxes from those houses.

Public transit helps not having a car. That helps the environment and those that can't or don't want to drive.

Most US cities have pathetic public transit to the point it is impractical (eg: buses running once every 2 hours and stopping at 6pm is not useful)

Bottom line, I think this gets to the debate of car centric society. How do you do less densely populated areas in the american model without cars? I don't think you can. The problem with less dense and car centric is the 100 year upkeep cost is unsustainable

And for that matter you can live in the "countryside" and still have ready access to many major cities. I live in the middle of fields, conservation land, and orchards. But I'm only about an hour drive from Boston. It's not rural rural. But it's far from what most people think of as urban or even suburban.

Small cities can’t support a critical mass of “niche” services such as exotic foods, night clubs of special appeal, cultural centers like major museums, and a lot of really neat coffee shops etc. I’m in your camp preferring rural life at some level but after living in SF, NYC, and Seattle I can’t imagine not being able to walk to a great coffee shop, grab some bingsu, and visit the Computer History Museum. There’s a density of people that allows you to find a wide social network that’s into the weird things you are. Etc. I think an awful lot of city dwellers live in them because they prefer the lifestyle regardless of cost.

Rather than collapsing I think cities will thrive. There’s a huge economic pressure on residential property and a downswing on office property and the office property is in some of the best real estate in the city. Developers aren’t stupid, they’ll convert to mixed use and reduce office densities to keep their per unit margins up, and rent/sell condos and retail space for the residential community. This will actually draw more people to the cities because there are a lot of city dwellers that have been pushed out to suburbs due to lack of residential supply.

but as you said, these information workers nees these services provided by city, so where will they move to? and if these services are sustainable only by economics of scale, you cant expect to just move out of the city to neatby area but still use city services time to time. its similar to all discount stores probaby. you can have them only because there are a lot of poeple buing non-discount things, and you get the leftovers. if everyone would only by at discount stores, the music would stop soon and game would be over.

Most of the services provided by the city are provided precisely to manage the problems created by the city. You don't need complex wastewater sanitation and management if you don't have a thousand people living in one building on top of an acre of land. You don't need a subway to get around wide open spaces.

The services I was referring to though were private services. Bodegas, burrito shops, dry cleaning services, taxi cabs, all of these go out of business if office workers don't walk or drive by them en masse daily.

Maybe in the US where cities are very strictly zoned and there is clear divide between the business district and suburbia. European and Asian cities are much more mixed and the effects there will not be necessarily the same. Actually, if American office building will reinvent some of the floors as residential apartments it might even make the city more attractive and interesting to live in.

My cynic and caustic view: office buildings will became social houses for new poor witch will happen to be far more than today, wealthy from large cities migrate toward new places around some new or existing services and all such buildings have actually to be built, along a bit of needed infra.

So real estate simply refocus from large and expensive buildings to smaller single houses, not much less expensive for their buyer while in raw materials terms they cost FAR less, who really loose are those who actually live in large cities, can't buy a new home in a good place, all who have jobs around offices (like restaurants, bar, ... and all shops in the shopping center areas nearby large offices areas).

Of course, those who came first might fall because it's an uncharted territory, those who came second normally prosper benefiting from those who came first, who came third and beyond... Sorry, you are too late...

> We show that the pandemic has had large effects on both current and expected future cash flows for office buildings.

And this is why loans charge interest, for the "I have no idea what's going to happen but I don't believe you that this enterprise is entirely risk free" sort of reasons. Though I think we've generally managed to decouple the concept of "risk/reward" in loans/investment/etc, in favor of "I'm guaranteed returns, come hell or high water!"

However... on the topic of office space, I can only say, "Well, those chickens sure went home to roost." I can't fault office workers for not wanting to go back to the circle of Hell that a modern "open office" floorplan is. And I don't blame them in the slightest for seeing through the "spraying fountain of crap" that are management's supposed justifications for it. "Serendipitous encounters" happen with offices. But they happen in the places where people go to hang out when they want those encounters, when they want a break from the peace and quiet needed to actually do work. I expect a lot of workers just want to hear management say, once, "You know, it's cheaper to squeeze you in tighter and buy a few more desks than to buy more office space." Though it doesn't explain why the new office space has 500 foot sightlines...

Over the years, I've had almost every office configuration one can have, with the notable exception of a proper cubicle. Frequently, I would have nearly killed someone for a cubicle.

Offices with doors are great, and even if you have to share them with someone, as long as there's good space to work and spread things out, they're wonderful. Door closed, I'm working. Door open, come and chat.

"Team work areas" are fine, if all the people in the room are on the same team. They tend to develop work patterns and cycles, so you know that some hours are light work time with some social interaction, some are heads down hours. Of course, it's amazing just how fast the couches, coffee tables, bookshelves, whiteboards, etc can disappear to cram more people in when the team expands.

And then there's the open office hell that is just horrible for the exact sort of work that tech types are paid good money to be good at - what Cal Newport calls "Deep Work." The sort of stuff where, done right, you can disappear into a problem for 6 hours, and come up with something good. The open office reality is more, "If you can get half an hour of actual concentration, with something loud screaming in your headphones, you're having a good day."

And I've been able to compare the two states, because my current office (full time remote) is the "Solar Shed" - an 8x12 Tuff-Shed that's entirely off grid, and entirely my own workspace. I now can, and do, manage the "My wife has to ping me for dinner because I've lost all track of time with some problem" days. I came to it from open office, and the contrast couldn't be more extreme.

So, yeah. If office spaces were good places to get work done, I expect a lot more people would be interested in going back. But they're not. And even a poor quality WFH space is often better than "always loud, always people talking, can't get an hour of good concentration in" open office hell. A good WFH space? Nobody has offices like that anymore.

It will be interesting to see what happens to our cities if WFH stays/becomes the norm. So much of modern city design is built around the office, what happens when that isn't the case?

Sweet ass apartments in office buildings I hope.

Will people still want to live in cities as much if you can work from home?

Cities are also where most social gatherings happen, esp. for younger people.

If these unused offices could be better as apartments, i don't see a decline in how cities being a great place to be.

If it's affordable, yes. Generally speaking, the only thing that keeps me away from wanting to live in a major city is paying 3x the price, for 5x less space. Most other parts of city life can be nice.

I think so. Some portion of the population likes the density and walkability of a city. If you take away a lot of commuting traffic, it's unlikely to get less liveable.

I co-own a small city office and we've always assumed redeveloping as three-storeys with residential above commercial would be our long-term plan. It's a short walk to dozens of restaurants/cafes/pubs, short walk to a chemist, small supermarket, florist, and so on. Two blocks from large parks and running/cycle tracks, etc.

Of course they will. There's more reasons to live in a city than just "it's close to work".

Also, there are plenty of people who work in the city who cannot work from home because their jobs require them to physically be present.

Some of the physically present jobs are supporting roles to people who now don't have to be in the city. Example: a restaurant worker has to be physically present to serve customers, but the customers were all former office workers.

Agree that cities offer more than just a place for business to happen.

WFH even if I stayed exactly where I am in a city is, for me, a strict upgrade, so I imagine yes. It also gives me the freedom to move anywhere I want in an entire city without having to worry about what that'll do to my work commute.

The main benefits are human connections and walkability. There are lots of others from decent restaurants and bars, multiculturalism, decent shops, concerts, theatre, street events, quiet (yes! … see the good HN discussions about leafblowers, lawnmowers and suburban noise), carbon footprint, …

I think the better question becomes, will cities remain as attractive, without the daily worker demand creating more shops/restaurants/entertainment? If just the locals, will those places continue to exist and thrive as they did pre-COVOD?

I’d expect people to still want to live in cities with a decent cultural offer. I’d be more worried about what will happen to places like the dormitory district that is London outside of zone 2. Why would one want to live in Brentford when they won’t need to catch a train to Waterloo every morning?

Haha! I would like to see an example of this.

Not a chance. This is completely unrealistic without major, major reconstruction. It's cheaper to deconstruct and build a new building in its place.

Imagine the amount of plumbing you would have to redo for the toilets. There all sorts of codes for apartments, there must be so many windows, you need natural light in bedrooms etc

I doubt that practical considerations relating to renovating a building's plumbing are very relevant. NYC is known for an aggressive zoning policy against commercial-to-residential conversations, which they overtly defend as policy (to keep NYC attractive for business headquarters). If it were infeasible to undertake commercial-to-residential conversions for practical/construction reasons, the city wouldn't need to go out of its way to ban them.

They are extremely relevant. Office buildings have floor plates that are simply unlike residential ones. Rules of that kind are probably to discourage (i) conversions from commercial for old buildings that weren't as differentiated, possibly and (ii) stealth residential projects that are proposed as office for expedited planning review. SPUR recently hosted a panel with AIA and large developers which basically said that repurposing an existing office building is as expensive as ground-up development when it is feasible at all: https://twitter.com/maxdubler/status/1526651858143436801?s=2...

Great article on the problems of office to residential conversions. Essentially, good office buildings make bad residential, and vice-versa. https://www.nbcnews.com/business/real-estate/why-empty-offic...

Sweet ass apartments and communities in office buildings I hope.

I expect, the crumbling of many cities.

Mandatory Arthur C. Clarke predicting the future in 1964:

https://www.youtube.com/watch?v=aajlLeTgrEg

I wonder if wfm in the UK has significantly impacted newspaper readership from the drop in commuters (particularly the Metro, which is targeted at casual commuter readers) that proprietors and editors - and their flying monkeys in the government, including the Prime Minister - are writing thundering columns in their papers denouncing work from home as some kind of apocalyptic threat to the economy in general.

Good. Work from office should really be made illegal in order to protect the environment and public health. Exceptions can be made of course for occupations where physical presence is actually needed. This madness has to end. Using very finite resources in order to transport people’s bodies daily, while polluting the air and contributing to a climate disaster for no good reason is absurd.

Does anyone really know the impact on productivity? I work for a remote-first company (never had an office) and things move so slow.

I've only seen some articles and no solid research but every indicator is WFH is just as if not more productive than in person work.

If you think about it, it makes a certain amount of sense, workers have more hours in the day due to no wasted transport time, and can do work ad-hoc when ideas strike even outside regular buisness hours. Also meetings are less disruptive, you don't have to get up to go to a specific room and wait for everyone to show up, you open the link and can keep doing minor tasks while you wait or evwn during the meeting if it's not that critical for you.

Really working in an office has a lot of wasted time you can imagine lessening or outright disapearing when done remote.

IME, the factors that drive 'things moving slowly' are more likely to be company culture and management structure / ethos than the proximity of workers to each other. I worked for a fully-remote company during the pandemic, led by highly-motivated and talented engineers, and the pace was higher than in any office I've ever worked.

My mega corp did a lot of research using our pervasive spyware and came to the conclusion that remote work improved productivity by approximately 15%. I think generally velocity though is driven more by decision making processes and culture more than where chairs are being warmed.

My uninformed solution is, at least in SF, they should re-zone all of the financial district and union square. If the first floors were cafes and shops and the upper floors where apartments and the top floors restaurants, patios, lounges, they'd revitalize that part of town. It's dead at the moment.

These economies were overbuilt based on captive demand.

We may just have to do without so many Hale n Hearty Soup shops.

It’s true that Aramark suffers when we enjoy entertainment at home but should we have to attend a concert daily just to support Aramark?

Does anyone work for a company that has reduced its office space but not headcount due to wfh? Most seem to still be working remotely from too large offices while companies are figuring out what to do.

My employer started shifting to a work from home model about five years ago. They were shedding office space as quickly as they were able to get out of leases. I think that slowed down with covid because before the pandemic they were able to easily find other companies eager to take over leases. On the rare occasion I go into a company facility, it's notable how dead they are, with plenty of excess space. This was true even before covid. I know they were planning on putting up some of the company owned facilities up for sale back in 2019 but I think that's been put on hold now that they market has dropped.

I’m wondering the best way to invest in NYC property more without directly buying it. I seriously doubt the prices will stay depressed for long. Is finding the right REIT my best bet here?

I thought it was strongly discouraged to have sensationalist titles on scholarly papers? Maybe that's just in physics.

any chance they will be converted to residential and push rent down?

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