Small biz owners scale back their office space or go remote altogether | Hacker News Reader

Small biz owners scale back their office space or go remote altogether

cp24.com

99 pointsfrfl64 comments

I rent at a WeWork style building, and have been at this coworking space since 2018.

My rent has consistently been around $700/month. This year, they got a new sales person, a new community manager, and finally started fixing things like the broken coffee machine (which was only broken because the previous community manager didn't want to clean it/stock it), removing expired products from the vending machine, and finally changing out the water filters on the drinking fountains...and the tried to raise my rent to $1400/month, with "No room for negotiation."

Interestingly enough, the minute I started moving things out of my office, we could negotiate a smaller amount of money for rent, but, I'd rather take that $700 and just get an extra bedroom in my apartment: things can be closer and I can do more.

When I moved in to this building, there was a waiting list of people to get in -- now, it's close to 85% vacant...with more and more folks leaving every day.

Commercial property prices are disconnected from reality.

I'm associated with a non-profit that does robotics. We are trying to find space to grow the program. A local mall that has lots of dead storefronts is close by. We tried to talk to them about a lower lease rate and they were not interested in talking.

I asked isn't it better to get some money coming in and they said that they were able to write the space of against taxable income in the rest of the space. REIT's are weird.

Did this at the end of last year, after my landlord said he was raising the rent 12% because his costs were higher. He owns the building outright and services like cleaning are paid by tenants. When he saw I started moving furniture out he came back to me and said we could discuss the rent.

I gave my 30 day notice and was gone by New Years Eve.

His nominal costs are higher.

Taxes, insurance, repairs, maintenance all have gone way up. Plus costs due to crime/vandalism.

And there's a chance you voted for the policies that led to this outcome.

I like how you conveniently left out greed. But I’m sure that’s someone else’s fault too.

It's greedy to try and maintain a constant, razor thin profit margin?

No, but the ways landlords go about trying to maintain that margin are.

This isn't hard to understand, are you a landlord or something?

You have zero notion to what the current profit the landlord is making or if it’s anywhere close to “razor thin”.

Yet you pontificated on all the things the increase could be and took the time to get in a jab by asserting it is most likely the op’s fault because they “voted for those policies” yet you conveniently left out the easiest of them all - greed. It’s not beyond the pale for a landlord, especially a private one, to arbitrarily raise prices just because they can.

But, oh no, it must be taxes and crime and everything else under the sun but couldn’t possibly be simple greed. Must be those razor thin profit margins jumping out to scare that most honorable capitalists like the boogeyman under the bed.

I believe commercial real estate is a ticking time bomb in the financial system. So many small and regional banks have so much loans tied away in CRE, the future of which is completely uncertain.

You are correct, and 60 minutes did a good detailed overview of this recently: https://www.cbsnews.com/video/60minutes-2024-01-14/

They highlight how the rolling nature of long-term commercial leases means that banks can kind of kick this can down the road, but only so much, and high interest rates makes this incredibly difficult. With this one it really does feel like we've jumped out of the airplane without a parachute and a lot of us are just going "Hey, nice breeze".

I'm not the most optimistic sort, so I'd love to hear any thoughts on how this doesn't end in complete catastrophe. It just seems like something policy makers and market participants don't want to talk about too loudly because they're worried about spooking the market.

It's not some big secret. If the market was going to spook it would have spooked.

Not necessarily true I don't think. It's possible they will freak out over the upcoming years. There's a lot riding on commercial real estate. It isn't easy to convert to living space either.

Market is too busy buying NVDA and selling puts. Everybody knows about CRE but it isn't a problem for this quarter. Besides, if it ever becomes a problem, the FED will drop a dedicated CRE credit line over the next couple weekends. (If it doesn't, though...)

The market can be blind for a long time. Bad mortgage lending was pretty obvious in the early 2000s. The dotcom boom and many other booms were obvious overvaluation. Greater fool and FOMO are powerful, especially if your incentives are short term.

I think the market assumes that since everyone is exposed, no one is exposed (there will be bailouts).

FDIC bailouts or failure managements of smaller non GSIB banks who are overexposed. Haven't dived into which banks are most at risk, potential investment opportunity if their equity is publicly traded (not investing advice).

https://www.fitchratings.com/research/banks/us-regional-smal...

https://www.fsb.org/2023/11/2023-list-of-global-systemically...

Related: https://www.bloomberg.com/news/articles/2024-01-30/billionai... | https://archive.today/isGFU ("Billionaire Barry Sternlicht sees more than $1 trillion of losses for office real estate, calling the properties “one asset class that never recovered” from the pandemic.")

Additional citation: https://www.bloomberg.com/news/articles/2024-01-31/new-york-...

Same thing could have been said in 2007. "Everyone" knew there were a bunch of junk bonds floating around. What's uncertain is who is exposed and how bad is it, so which bank do you bet against?

In 2007 we didn't have a precedent for just printing money to cover everyone when things went down. If anything financial disasters are great for people who hold stock now. All the added money will settle there.

If you owe the bank $100K, you have a problem.

If you owe the bank $100M, the bank has a problem.

If you owe the bank $100B, nobody has a problem, because Uncle Sam will somehow magically take care of everything.

So, yeah, I'm not sure we took the right lessons away from the last time this sort of thing happened. Taxpayer-funded bailout for the commercial real estate sector coming in 3...2...1...

Uncle Sam just spreads the problem around. Your 100B debt is now everybody else's problem and they get to pay interest on your debt.

This isn't the first commercial RE bubble the US has had to cope with. We had a similar catastrophic one near the end of the 80s that bled into the 90s. People have mostly forgotten about it. Vacancies in some cities rose from 10% to 40% largely due to overbuilding. Recovery took about a decade.

> we've jumped out of the airplane

We who? The greedy and the irresponsible who are hogging real estate to profit from the productive sectors of the economy? Good riddance, then. A "complete catastrophe" in real estate is great for every person and business who is actually productive and beneficial. There needs to be balance. If 100% of a nation's surplus productivity is swallowed into real estate profits, then you'll have a scam economy where all money and all effort goes into real estate instead of useful work.

This woefully and naively ignores the systemic effects.

Banks hold $3 trillion in commercial real estate debt. That 60 Minutes report talks about how regional banks have huge amounts of their loan volume in commercial real estate. So to answer your question of "We who?", the answer is anyone who has a bank account, and given how the government will do everything to ensure the financial system doesn't collapse, every taxpayer.

More details at https://crsreports.congress.gov/product/pdf/IN/IN12278.

That's arguing like a hostage taker or terrorist. "If we go down, we're going to make sure you go down with us". The people does not have to accept being taken hostage.

There's no talk about systemic effects when real estate is siphoning all wealth from the population and making having a home and a family near impossible for most young workers.

Edit: And anyone who has a bank account? Then where is the 500% return on the money that I've had in my bank account during the real estate boom, or do we only get to pay for real estate speculation losses without any benefit from real estate gains?

Now you're getting it....

It won't necessarily be cheap or free to convert, but I think it's a slow long-term haircut more than a time bomb. Land is still at very high levels of demand in most urban and suburban cities, people will find non-commercial uses for places that never get used as office again.

One thing I keep wondering about is retail as a use for this office space.

If you visit most parts of Asia you'll find that the North American focus on having retail only on the ground floor is a self-imposed and arbitrary limitation. In other parts of the world there's nothing at all strange about having a restaurant on the 8th floor of a building, or a clothing store, or a hair salon, etc etc.

Personally I find that retail businesses in Asia are far more interesting as a result - retail rents are comparatively cheap, encouraging an explosion of interesting niche retail businesses (a vinyl store selling only 70s vinyl? Sure!) that still pencil out financially.

Retail in US urban cores on the other hand has been stagnant, with only major chains being able to afford the skyrocketing rents.

This feels like an opportunity? Imagine the kinds of interesting businesses that can be created if we took off the totally arbitrary cap on retail space.

I've never been to Asia but have heard about the mixed-use high-rises and am hopeful we'll get them. In Chicago our central business district has a decent variety of retail beyond just the chains: a small jewelers' row, a comic book shop, a record store, some independent menswear and shoe shops, and yes, all at ground level. Some buildings have a barber or gym somewhere in them, and that's pretty nice.

I once heard an anecdote of two friends planning to meet up in the bar in a specific building in Tokyo and having to text to realize there were two bars, how cool is that?

It seems like there's a bunch of businesses that could help make an office building more enticing - specialty coffee shop, bar, barber/salon/nail salon, dry cleaning drop-off/pickup (this one I've seen). And then the one that might really make a big difference: daycare.

I'm not a parent so I assume there's a good answer why these buildings don't have daycares (commuting with the kid maybe is too difficult?)

what you've written here activated my nostalgia for playing SimTower. balancing the needs of residential, office and retail tenants... thanks for that

> "It seems like there's a bunch of businesses that could help make an office building more enticing - specialty coffee shop, bar, barber/salon/nail salon, dry cleaning drop-off/pickup (this one I've seen). And then the one that might really make a big difference: daycare."

A lot of the US already understand this, but they remain steadfastly bound to the idea that those services can only exist at ground-level (or in some basement level). The key conceptual gap is that it's totally fine for these businesses to be 10 storeys off the ground!

It feels like entirely the wrong trade-off to me to make retail much cheaper and significantly increase it when housing is already so painfully expensive in the kinds of places where you could consider doing that.

It's obviously a much harder transition physically, but I think the right thing is to turn much of this commercial space into residential.

There's no reason it can't be a mix of both, even in the same buildings. The single-purpose zoning in the US is a curse, and the lack of that is one of the elements that make a city like Tokyo so walkable. Sure, you can take a train to a shopping oriented area, but day to day you might have essentials close by.

Even antipatterns like delivery for everything are less appealing if you can just walk a little bit down the street and pick up groceries or whatever.

Exactly this. For many reasons that are already well-trod, some commercial buildings are effectively unconvertible to residential. This is a potentially good adaptation for those buildings.

In fact the specific properties that make them unsuitable for residential conversion (deep floorplates with low access to sunlight) are non-issues for many types of retail.

The two go together, of course. In places where rent is cheap, more kinds of businesses are viable, because surviving is easier.

Also I suspect a lot of places have really loose ideas about zoning, so a person might live in the back or above their store. Don't see much of that in the US.

> In places where rent is cheap, more kinds of businesses are viable, because surviving is easier.

Rent goes down, but so does income when there are fewer people nearby to visit the business. It's not clear to me which factor dominates. My impression is that often the lack of customers is the main factor: small towns rarely have lots of quirky niche stores unless they happen to be a satellite to a larger metro area.

I suspect specifics of zoning laws or other factors (demographics of nearby metro areas, taxes, etc.) end up determining which effect matters more.

> Don't see much of that in the US.

I think that depends a lot on where you are. I see a ton of 5-over-1s here in Seattle [1] and those often have retail on the bottom floor.

https://en.wikipedia.org/wiki/5-over-1

Yeah, if you want quirky stores you need density and low rent. I think this happens in lots of urban Asia as talked about above, if I understand correctly?

What I'm thinking of fellas pretty different from 5 over 1s. Three retail on a 5 over 1 is like, a chipotle or a Starbucks. In Mexico and Ecuador I've seen a little restaurant or convenience store where the owner lives upstairs, opens when she wants, closes when she wants, may or may not employee anyone.

Or I've got a friend here in Chicago whose apartment used to have an extra wall separating the front room from the rest of the floor. It had been a doctor's offic in front and residence in back, a hundred years ago. That's illegal these days.

I'm surprised there hasn't been a boom in specialized companies offering conversions. Yes, it's not easy, there are regulations/laws/etc. Having a company know exactly what needs to be done, how to do it, and where to source the stuff and labor to do it economically seems like a winning idea.

Some will, but how would fewer jobs in cities affect the number of people who want to live there. And if the restaurants, bars, cafes, etc. also shrink as a result... It's by no means obvious to me that nearly as many higher income people live in cities if their work doesn't require it. Certainly wasn't the case historically.

It's very good then. Urbanization is very extreme as is so things that alleviate it will go a long way to increase QoL of everyone.

Tons of unused commercial real estate coupled with tons of people who cant afford housing... I wouldn't be mad if govt used my tax dollars to incentivize conversion of giant downtown office complexes into mixed use buildings.

These are offices for 10 to 20 people (1200 to 2000 sq/ft) if your company isn't flush with cash an office is becoming a luxury rather than a necessity. Especially in a major city where a small office can be 100k a year.

The trend is going to continue over the coming years, especially with bigger offices that are paying millions each year.

Even in really big companies that focus around retail or healthcare, it is really practical to shut down offices. Our medical care facilities are no longer being built out with offices in the backrooms for IT/Finance/Etc... staff. We can rent smaller spaces or do more with existing spaces by converting it into more medical facility space and run all the business and software operations via WFH. We operate in 20 states and are racing with competitors to who does this the fastest to cut costs and charge less to providers for a competitive edge

That’s fascinating. I’d be really curious to learn how they are evolving the back office with that shift. Over the pandemic that’s when I saw the biggest change in tech stack/process in healthcare.

We'll have to see. I do see people thinking about lease renewals that would once have been automatic. It's not that people don't meet in person but you don't necessarily need fully-provisioned office space in an expensive location to do that.

This might be an opportunity for smaller, more local co-working spaces.

Not sure why. I need a meeting space in a city I want a familiar website to go to.

You're right, I'm thinking of a different persona. I'm thinking less about travellers and more about locals working from home wanting to hang out with and work alongside other local workers. Maybe a business needs a permanent number of desks but not enough to warrant renting an office. I don't know anything specific it's just my gut feeling and how I'd want it to play out.

Fair enough. Don't really have an opinion on local colo absent a company office.

Exactly. I see companies downsizing to offices with more meeting and collaboration spaces

We have always been 100% remote. I have people who live in India, Pakistan, Nigeria, NC, IL, and CA. It's the only way to go.

My wife runs a small business and I've been seriously considering buying a 1br apartment nearby to serve as our 'home office'. Mortgage would be ~1200 a month and there are plenty of them 5 minutes bike from our house to choose from.

Getting our place + 1 bedroom in the same area would cost way more because a lack of 3+ bedroom builds here.

Never thought I'd see CP24 on HN

There are a few posts that link to cp24. But definitely rare. https://hn.algolia.com/?q=cp24.com

I was lazy to find a original source of this, I'm assuming CP24 did nothing but repost this news article from some other news org (AP most likely).

We're taking a haircut on our space. We just don't need the same amount of space now that 50% of our staff are primarily remote. We're keeping 75% of the square footage, but the "overflow" just isn't necessary anymore.

Yeah, I've seen that trend a lot. Execs don't want to fully commit and lose half of their office space so they reduce it down a little bit. I imagine they'll reduce it again if it's the same for the duration of the tenancy.

Makes sense. Why lock-in into ATH prices if you can just wait it out until the market corrects itself by crashing

I am a bit advocate of remote work, but I actually think for _small teams_ offices make sense. I would thoroughly enjoy working in 4-8 people small office. It is when you get into high double digits and beyond when it becomes unbearable drain.

depends on how close those people live to the office, i think. my productivity definitely went up during the pandemic when i didn't have to face a daily commute.

commute sucks regardless of the team size, no denying. I am only referring to whether work in the office can be rewarding or not

The problem seems to be rent cascades. One shop owner quits his lease, the mall landlord redistributes the expected income/costs to the other renters, who then become more likely to quit.

http://archive.today/baKGL

Wait you guys got offices?

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