Commercial Real Estate Meltdown?
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- Опубліковано 18 тра 2023
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The next big potential risk to the U.S. economy may be lurking in office buildings across the country's downtown districts.
With many people still working from home, companies are cutting back on office space which threatens to unleash even more headwinds for the U.S. economy.
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Stop teasing us, we want your dry humor on the debt ceiling, 14th Amendment, and trillion-dollar coin
2:55 - German "residential" landlords are expected to make calls soon??
¡Yo aprendo español tambien - tú hablas muy bien! 💃 🎉
@@Did6661 hearing him speaking Spanish was priceless cringe
Babbel Live is one of the best learning service I’ve seen in years. I strongly recommend it! You have unlimited group classes with native teachers for five languages in one subscription
Let's see, drive into the city, spend 3.5 hours in traffic, pay all the tolls, wear out your car in an era when cars are more expensive then ever, pay for parking, or spend hours on the trains and subways ? ..... Nah ! Screw that, it's not in my interest, there's nothing in it for us. The commercial landlord's and city government's problems are, well, their problems.
Not to mention oftentimes working in a high crime area. Who wants to spend hours driving to work only to find their car's been broken into for the third time?
@@psychickumquat What causes areas in big cities to have higher crime than other areas?
Sit around at home and slowly become a diabetic agrophobe 👍
@ironman tooltime have fun enjoying your gym session at peak hours of before people get to work and after people get out of work.
@ironman tooltime I'm sorry you're unable to spend any time saved by not having to commute with people or exercising. It sounds like a terribly sad situation.
During the good times they expect to be allowed to make as much money as possible, and to have nobody stop them. In bad times the banks immediately turn around and start begging for handouts.
👍🎯💯
that's how all corporations operate, Hollywood and theaters, airlines, train operators, it's all the same story, they beg for bailouts and then turn around and use the money for stock buyback
Privatized profits and socialized losses
We should enact French solutions for the banksters
It wouldn't happen so often if they didn't hold pensions hostage.
After experiencing work at home, who in their right mind would want to go back to working in the city? Getting up at 5 am just so you can sit in 90 minutes of bumper to bumper traffic or alternativelty take a bus ride that smells like stale booze and depression... walk half a mile to the office wondering if you're going to get mugged... Sit in a bland cubicle in a stuffy freezing builsing for 8 hours... then do it all over again 5 times a week. No way.
I love having the freedom to work outside, on a standing desk instead of hunched over on a cubicle.
I work better in the office hahah but I only need 15 Minutes to work :)
People should also work less and get paid more.
No they should work more and get paid more retard. What do you think is causes inflation?
Especially if it can all be done from home anyways. These companies want to surveil us
I am in my own house, eating my own food, using my own bathroom, hanging out with my pets, sitting on my personally adjusted chair, with my own art instead of a cubicle, with a 5 minute commute using no gas, no fish in the microwave, I can take a break and work out, and I get to wear shorts to work. Why would I give that up?
All this people who find it convenient to work from home will get a rude awakening when they realize that the same job can be done by somebody 5 thousand miles away for 1/4 of a price
@@pavomrnarevic3900 😂😂😂 I LITERALLY fix the shitty code written for 1/4th the cost (per hour) by people thousands of miles away. I'm safe.
@@pavomrnarevic3900 big time cope you fuckin gaper ❤
@@pavomrnarevic3900 that's cope, the first ones to go were factory workers my dude and those don't work from home. No job is safe from offshoring, besides the fact that most offshore workers are worth what you pay them (i.e. they are sht)
@@marcogenovesi8570
What I meant is that working alone at home leaves people totally dependent on the corporation , working in a group setting at least gives you a better chance to protect one’s interest
I just recently had my business’ lease up for renewal, and the landlord legit tried to act like we were going to increase our rent 🤣🤣🤣 told her we were going down by what equates to ~30% per sqft or else we were moving to the better building across the street for less, and they just had to take it. So happy to see this happen, commercial landlords deserve everything they’re getting
Credit to the agent for at least trying haha - commercial real estate is so stupid and makes no sense hey. When you see a place vacant for 3+ years it makes you wonder how someone can afford to have it empty but they are just waiting for a sucker to come in on a 10 year lease and shaft them
@@KeenJT Many of those properties are owned by bank groups that don't give a shit about the cost of maintenance because, thanks to zero reserve lending requirements they can just make up numbers to replace expended funds.
In 2017, these landlords forced one of my favorite restaurants across from office to close because they got greedy and wanted to raise the rents and didn’t want to negotiate. Place is still empty.
@Numbered--Weighed--Divided bro your name is a bad omen lmao, mene mene tekel upharsin huh
Yeah these commercial landlords need a massive reality check.
The problem is the way they adjust market rates, it's a controlled game. I know these particular shops that haven't been occupied in the past 10 years, they just going to waste because the owner claims his 3x rent is justified because they built up houses around his area. He's entitled to do anything with his property, if you want to have not a single person occupy your buildings because you think you have gold that's on you. But where it becomes a problem when everyone starts thinking and acting that way. Most of the real estate in this country isn't worth the value people think it is, everyone just keeps raising their prices because the next person does and now that's where it starts to become a problem. It's all artificial and everyone thinks they have gold.
Every *landlord* thinks they have gold
The new owner of the building my company was leasing space in basically tripled the rent last year, so we bought our own building and changed locations last month.
They've lost nearly all of their long term tenants.🤣
@@LawrenceChung if they can get it they do have gold. Market rate capitalism.
Dear landlords who always swear the market has spoken, it is telling you something very loudly.
And will keep speaking: your time is up! 😅
Years ago I was considering being a commercial real estate agent. I’m glad I didn’t go down that road.
Would at least been better than a commercial real estate investor
Why ...almost every real estate agent made fortunes over the last 2 decades.
@@gladlawson61 Exactly. Just because a sector is down now does not mean it will remain down. Now if Seeky907 decided to not sell word processing typewriters I would say that was a great decision
It's only offices and malls that are in decline. Everything from restaurants to cell phone towers are still thriving.
I found if the person down the street is now a commercial real estate investor and everyone is talking about it including your grandmother, its a bubble.
Who knew that people leveraging technology to be happier would be a problem? Edit: I mean, this is kind of what we were promised. Remember all the marketing material a few years back showing an office working at the beach?
It’s only a problem for the ultra wealthy
not sure how this is caused by working from home. Businness real estate in most places costs silly amounts that simply are not compatible with small shops, plus crime rates increasing dramatically also destroying any public-facing businness real estate. Many cities are just imploding under the businness real estate bubble strangling the tenants. People working from home mostly affect the big corporations that could easily afford the big office spaces anyway
It's supposed to make you work at your holiday, not from home. You supposed to work more not less 😉
A few years ago? Hell, I have been waiting for this for at least a decade. I had been arguing online that the future of work was that any job which COULD be done remotely, even if it required some changes, WOULD be done remotely since 2010 at least. The technology was there, and widespread enough that it was inevitable if there is any sense of objective reasoning taking place in corporations. I believed this strongly enough that I decided to put my money where my mouth was and in 2015 I quit my job with no plans to take another. I intended to make my living doing freelance software development work online exclusively. The following 2 years I learned more than I had in the 15 years prior combined. Both about myself as well as new technologies and software development skills. I'd been coding since I was a kid around 1990, but the job I'd held for those 15 years that I started right out of college was a boring government contracting job and the pace of change there was glacial. For making money, it was a big pay cut but that was entirely my own doing (I wasn't good at seeking out new work once I had enough to cover all my expenses, I was perfectly content with just having enough). I ended up going back to the office after those 2 years because I needed a new car and didn't want to take on a car payment and have anxiety about whether I would be able to pay my bills or not. I know myself and I worry too much. So I went back, and continued searching for a fully remote position which, at the time, was very much a "Unicorn job"... Fully remote, but still paid like an office job and was reliable and predictable. The problem is, at least in the software field, competition is huge for those kinds of jobs. It's a field with a preponderance of introverts that absolutely would not mind staying home.
One of the things that almost every single video or article talking about remote work completely ignores because they are written by people who are implicitly, if not explicitly, opposed to remote work is that FULLY remote positions make the entire planet your talent pool that you hire from. If you require even one day a week in-office, you leave 90% of the benefits of embracing remote work as a company. You shrink your talent pool, immediately, to only people already located near, or willing to relocate to, the area around your office. How much of planet Earth is NOT within driving distance of your office? Oh, yeah, and you have to actually keep an office. Which means not only do you get the productivity-lowering effects of an office (that shouldn't be news to anyone, since the 1990s over 1,000 studies have been published showing that at least open floor plan offices, the only thing companies do now, destroy productivity) for those workers, you also get the maintenance and upkeep costs, you need an 'office manager' or similar, you need a larger HR team to handle HR issues that get invented by forcing people who do not need to be physically close to one another to do their work to spend time close together, you limit the work schedule, you introduce brand new communication complexities and challenges of keeping everyone on the same page unless you force the in-office crew to just use exactly the same communication tools and methods used when they work remotely, etc. I've been thinking about this since the 90s and trust me, hybrid work is the dumbest option possible. Might as well just declare bankruptcy if your middle managers panic and have an identity crisis when they feel their "people skills" aren't as valuable any more, the only reason one might have to ever engage in the folly of an office.
The truth about offices is that we only have them because executives are afraid of being original. They had offices in the back or on the 2nd floor of the factory, and it worked there, it must work here despite the fact that mental work is radically different from repetitive physical labor, right? And we should keep 40 hours a week and 5 days a week of work too, and not consider anything objective about human capacity for extended mental effort, right? I'm sure your company profits off of following tradition more than adapting to the challenges faced because of the work itself and no competitor will dare to ask themselves how the work might actually be done most effectively rather than considering the sin of questioning Lee Iococca. It'll be fine.
Eventually companies might even figure out that video on Zoom calls is a pointless way to do meetings and switch over to audio conferences with screenshare when necessary and group chats/IM/email for the rest. Oh well, I got lucky and found my unicorn job in late 2019. Mere months before the pandemic showed up. Welcome to the club everybody! Even my company still had a couple offices in the US. My boss, who I've never met in person, is in Chicago, some executives are in Dallas, the company went ahead and closed both offices after a few months in, luckily they had already had all their technical people fully remote for several years, so they knew how to work it well. The sales guys and executives can adapt. Me, I'm happy with my coworkers in Chicago, NYC, Dallas, Costa Rica, India, and elsewhere! I marvel every day at the aspects of the cyberpunk future I read about as a nerdy teen that have already come true, and can't wait to see what's in store next...
@@marcogenovesi8570 How is it not? I'm a software engineer and our office building is now completely empty. During the pandemic everyone started working from home or moved out of town and maybe, if I'm being generous, 15% came back. They moved us all into one tiny corner of the building, I have a desk there and even I only go in twice a week. Also, the corporations who can afford a fuck ton of office space (my employer) are not the bag holders here. That would be the property managers.
I see this in Washington DC. My company has a small office downtown a few blocks from the white house, and half the units in the building remain unrented. People who use to go into our office have fled to cities with cheaper costs of living where my company still has offices or have left to get entirely remote jobs.
The Pentagon has a similar issue. It use to be super busy in an era where hundreds of departments communicated by messager but now email is a thing and offices are in no particular order. Commanders complain about the half mile walks to pointless meetings
I grew up in Arlington and considering how overinflated the housing market is maybe it is time to turn that office space into affordable housing. The people took risk with their investments into commercial real estate and now it is time to show that risk was actually there the entire time. We all know that lower income homeowners had to pay in blood after 2008...
@@pastramiking That won't happen in places where property values are being artificially inflated so the owners can keep using them as collateral for loans in a sort of ponzi scheme. Doesn't help that some cities are also trying to artificially inflate those property values so they can collect more property taxes.
Work from home is the major disruption we needed .
Disruption?
@@nolisto1 Maybe he means wealth re-distribution?
@@nolisto1 whoops damn autocorrect... I meant to say disruption.
Absolutely
@@ashishpatel350 Perhaps your lack of proofreading is why you are suited for being at home.
?!? What ?!?
Landlords getting shafted like they shafted their renters with gouged rents?
Oh Noes !!!!
The Pain! The Pain!
gouge
The "Work from home" movement has had a way bigger impact on our everyday life and the economy than most economists are willing to admit.
"Going back to normal" just happens at JP Morgan, nowhere else.
work from home is the new normal, they like it or not
Many others who force thier staff back to the office too. There is a split emerging; Companies that allows "remote work" and those who does not. People are change work accordingly, if they can. So there are two lines emerging. This will work fine, people who want to work from home, or just any other place, will move to companies who allow that.
There is a lot of people who want to hang around at the office all day, so they will move towards companies who require office presence.
JP Morgan is just a shill for big commercial real estate. Nothing else.
@@SuperAnatolli This is so true! I can't change companies, because other companies require people in my position to work from a company office.
I'm an industrial rope access worker in Australia and I can tell you first hand that there's a ton of empty floors on the buildings I abseil down. I'm definitely worried about a slowdown in the construction sector but I stand with my fellow workers and applaud them for taking back some control over their working lives
What city? I live in Melbourne, but it's impossible to knwo from street level what's going on in any buildings. Apparently the CBDs loss is a boon for suburban businesses.
Perhaps there is a more profound question arising here. If you’re going to employ people remotely why not employ them in the part of the world that is cheapest but still have English and adequate internet, with no healthcare costs, pensions, employment contributions etc, etc.
However even more profoundly with the advent of AI how many of these white collar employees will be needed - who needs a software engineer when AI is better, faster and almost free. The same applies to marketing, design, Medical diagnosis, accounting, customer help desks etc ….. will there be a need for any offices anywhere. Perhaps only those who do something physical will have employment and wages will be negligible because everyone will want those jobs.
Could be a very bleak future!
If you don't mind me asking, what is a rope access worker?
@@ssdc2 Adelaide. I've heard that. Unfortunately for me my work is on highrise buildings. Not much need to keep building big office towers these days. But I'll survive
@@weird-guy Yeah residential is still going strong but rising interest rates are threatening that too to some extent
And yet in the US we are told there is a residential real estate deficit. Wonder if there's a solution?
I’m an old lawyer and remember when residential real estate in the cities was sweeped up by companies and changed into commercial use. There is no reason why this property can’t be switched back. The problem is the greedy corporations/landlords will try to rent and overprice this stuff as residential with us people becoming serfs that never “own” their homes but instead just pay them to continue to suck off of us and not work. A city CAN pass an ordinance saying that any land that is reverted to residential use must be owned by the new owner or rented out according to a rent schedule with “maximum rent” set by the city - but this is a new idea. But you have identified a big problem that sorely needs to be addressed.
@John Ashtone Yeah. The US has so much unused land that we can be wasteful of it and it isn't extremely bad, but in Europe this hasn't been the case for hundreds of years and they haven't had that luxury.
Zoning regulations reform?
I once thought so. Apparently converting an office to apartments is cost prohibitive.
If it is so easy buy one of these properties and make housing. You will find it's not easy at all .
Louis Rossmann of Rossmann Realty showed that lying is part of commerical real estate. I'm guessing things are worse than we have been lead to believe.
Ha h a "Rossman Realty"
Even for offices that are occupied, they are very much empty as many companies only require their employees to return to office only 2 or 3 days per week.
Yup, we're all in 2 days a week, remote 3 days and we've used the crisis to get a nicer space for when we are in the office. This is in DC. I go in most days, but I live close enough to walk on nice days and it's a short transit ride if it's not that nice.
I've been saying this since the start of the pandemic. Workers now days have the option to work remotely, and the pandemic offered an opportunity for employers to capatilize on this. Lessees are running out their contracts and then downsizing in office space. I work in commercial AC and I work on buildings where half the floors are nothing but vacant tenancies with "We have moved" signs on them.
bigger homes and more chickens. how easy it was to convey decision maker to open office spaces. a nation of sheep will beget a government of wolfs.
I’ve got a residential plumbing business. Most of our clients are either retired or work from home at least part or the week. This makes scheduling so much easier than pre Covid.
Maybe they will convert the space to lofts and apartments which should help lower the rent for everyone in that area.
Time to turn these empty buildings for housing and mix use purposes. Driving an hour plus from the suburbs to work needs to change anyways
There is a housing crisis and a commercial real estate crisis. Oh well don't see how we could handle those problems.
Put that back up yer butt where you got it.
Commercial real estate is far more profitable and paying more taxes, so that would be a downgrade as far as i understand it
@@tomlxyz Theoretically yes, if they can't rent it out, it's worth 0 dollars.
@@tomlxyz it used to be more profitable because demand was high. now that there is more supply than demand profits will shrink, and converting it to housing will become an economically viable alternative in many locations
Residential conversion is costly and often difficult. Open plan offices need to be subdivided, utilities need to be rerouted, pretty much the whole building needs to be reconfigured. If it's going to happen, the owner needs to be absolutely sure commercial demand will never return, or they'll have flushed millions down the drain.
That’s why all The financial employers are forcing everyone to come into the office
I love my hybrid work schedule and think many others love hybrid/remote work too. I hope this is a permanent change! People cannot afford to live where they work, so we have taken back the power by choosing to work where we live.
We moved office back in September 2020. The building had been sold and new owners tripled the rent. They are now converting the building to apartments.
This wouldn't be so much a problem if employers weren't already in the middle of expensive leases for their buildings/offices after the COVID shutdown happened. If they knew from the get-go, I doubt they would've signed them. It's why our company quickly ended their lease agreements and just closed down the building to let everyone WFH instead. Not a single layoff occurred in our 800+ employee building.
You have a good employer!
As for the landlord? He's on his own. Tough times in the new world.
@@LD-Orbs How difficult would it be to repurpose the idle office space to housing, I wonder?
@@korayven9255 Practically, it's like building a new building inside an old one. New plans, new plumbing, heating, cooling, walls, probably structural changes. Everything other than the exterior walls needs to be torn down and new architecture planned and executed. You might recoup some money if the office building had oversized stairwells, too many elevators and big enough underground parking. It can definitely be done badly, maybe done well, would probably cost as much as the original building.
My employer moved us to our other floor and got rid of the one I was on. They figured they’re paying so much for only a few employees . Can’t complain though , I’m only in office 2 days a week haha .
@@korayven9255 Or take locations like London's Regent Steet as an example. A lot of buildings have retail space on the first floors, with everything above empty. They used to be regular housing, but it's simply not practical because extra entries and staircases are not feasible (without limiting the main income - window fronts of the retail space). There are a lot of hurdles to repurpose commercial buildings.
I think wfh was inevitable. The tech was there pre pandemic and offices weren’t doing great back then. Although office property owners going bankrupt isn’t going to cause a contagion, I think the problem is losing smaller businesses that are close to offices. Laundromats and “happy hour bars” employ tons of people collectively. Also, losing the regional banks concentrates the sector into a few too big to fail banks.
We were easily able to switch to full time remote because we had been preparing for remote for years because our building space was planned to be downsized to the point where not all of us could fit simultaneously. Now the new space is laughably empty and over-large. (Old space = twelve buildings/parts of buildings spread over a city with space for about 4k employees. New space, one location with 4 buildings and a quarter of the floor space.)
Yay. Now all the W@H can continue drinking, smoking weed and doing drugs during work hours.
Replace office buildings with affordable housing and/or apartments or work here live here developments. Repurposing the space for living makes the most sense given the housing crisis in most urban places. This would save those businesses. Or at least help.
Around here coffee shops just moved towards the residential areas and restaurants opened up delivery only satelites. You can get the sit and eat experience in the city center and you can order at home. I believe it is a decent way to adapt.
Won't the laundromats and bars just move to where people live?
I am a CRE economist. And I feel like the sheriff of a town that just had a series of murders.
Well, in commiefornia, crime is the norms. Would be glad to have a sheriff KEKW
hmm?
I'm a paid guesser and I feel the same way!
😄Underrated comment.
good luck with yoru case, it's going to be a while before all the rubble is cleared
While on a trip to Toronto, I was in 38 th floor overlooking the cityscape with a view towards CN tower. I panned the view from left to right onto the Tower cranes atop the buildings. There was a day, no movement was seen on those cranes! Obviously, construction ceased.
Until I retired on Sept 30, 2016, I was working from home in Oregon -- and did so since May 2012. Our company (a monster financial services company with HQ in London) sold a major part of its business to another monster financial services company with HQ in Richmond, VA (what's in your wallet?). I found I was at least as productive in my home office (commute time now 20 seconds, from the kitchen to the computer room) without a daily 90-minute roundtrip dodging other idiots on the road and snow and rain in the winter. Yes, I rose at 4:30 a.m. and logged on between 5:30 and 6 a.m. daily. But I had the later afternoon hours to do errands, when I needed that time (shopping, doctor, dentist, etc.). That 90 minutes saved each day -- plus the savings on the driving costs -- made a big difference in my day and checking account. The stress-free commute was a big plus, too. Video calls, email, and a visit or two a year back East was all I needed to stay connected and "engaged" in work. I was part of a good team, too, which made a lot of difference. Yes, I missed out on office gossip and office politics and occasional team lunches, and I might have missed a few items of use in my actual work, but the freedom to get my projects done on time and budget more than made up for anything I missed. There are office spaces out here in Oregon that have been empty for years, but the pandemic didn't produce that all by itself. If I had been closer to my work team, I certainly would not have minded going into work a couple of days a week or so, but working from home, for me at least, was a much better experience -- and all this before the pandemic.
Bravo to you for being in the right place at the right time.
I love the fact that you give a European perspective on these issues.Its hard to get that when most channels focus on America.
Good one!
Agreed
This channel gives me hope. No clickbait, no fast short ADD material and cuts of fast speaking like a used car salesman. Patrick a legend. Even speaks Spanish
He's LEARNING Spanish. He doesn't speak it. I used to speak it very basically but it's been a few years. It takes MONTHS to learn anything worth knowing.
He’s a grand lad.
But on the bright side, stocks in tiny violins have shot _way_ up.
I’m 65, a metallurgist by trade, and I work in industrial sales.
Where I live in the midwest newly constructed commercial office buildings and industrial manufacturing buildings are springing up like weeds. I see vacancy and for lease signs all over when I’m out on appointments and making calls. Some of these business and industrial parks are like ghost towns 🤔
For TOO long greedy landlords have charged WAY too much for decades in blatant profiteering, well BOO HOO I hope they appreciate they're reaping what they showed.
If this was true, supply would have increased and prices would have fallen. The free market works if you can keep the government out of it. No one forced anyone to pay rent. Learn Economics 101.
@@darthnatas953 False. Your Econ 101 doesn't work here because it is idealistic and simplistic for real world finance. You seem unaware that properties are used as collateral for investments. Reducing rent means reducing the property's valuation which causes debts to default. That's why in New York City, landowners prefer to charge sky high rents for dilapidated spaces even if it means they remain vacant.
@@DKNguyen3.1415 "Reducing rent means reducing the property's valuation which causes debts to default."
Debts default when you don't make the payments. That has nothing to do with the valuation. Once the loan is made, my banker just wants his payments on time.
Rent is not "sky high" when a property is vacant. It is zero. I can assure you, vacancy concerns a lender much more than lowering rents.
Drove through DTLA to LA Union Station today (Wednesday) and traffic / crowds looked like a Saturday morning. Then parked at Pershing Square and walked over to The Last Bookstore. Sidewalks were relatively open and lots of small stores / shops looked very sad.
Nobody wants to work from an office or using public transport, going to a centralised location to work. Working from home is a decentralised approach that doesnt tax our resources ... offices have to go !!!!
Oh yes.. these are the empty office spaces that have a huge 'TO LET' on the building, about which I asked my sister in law: "Why are these signs always missing the I out of Toilet?". But this happened in the early 1980s and I'm sure that all of these TO(I)LET are 'let' by now 🙂. Every once in a while I see one, but there are so run down, they wouldn't serve as public loos. Great video, Patrick 🙂
Great video Patrick. I am an owner of a coworking space in a small commuter city near NYC. Currently my occupancy rate is 100%. What is interesting is if you visited coworking space or office buildings in FiDi many have been half empty even before Covid.
In hindsight since we saw these half empty offices at our day jobs we probably could have predicted this 5+ years ago.
Right now when I am reviewing proformas for mixed use and commercial almost none pencil out. A building is basically a business, and no one buys a business that doesn’t make any money for a premium. Prices will come down as soon as the owners NEED money, for now sellers are holding firm.
Thanks for all your videos.
The problem is that it’s in everyones best interest (banks, commercial landlords, governments) that the places remain empty rather than rent at a lower price. The commercial loans and valuations are based upon their rents. So it’s easier to live the lie and keep a place empty but for rent at a higher price than admit the truth and have the loans/valuations reset lower. Then it would be difficult to get lending and rates would be higher. There are even riders on existing mortgages that if values go down, the mortgage can be called. The landlords can’t afford to have to make large payments or refinance in a negative environment. Governments don’t want lower valuations because they will bring in less in taxes. This is why in cities like NYC and DC you see office buildings with For Lease signs on them for years. It’s cheaper and easier to eat the monthly loss paying costs on an empty building than take a huge hit that no one wants to afford.
Interestingly I was thinking just the other day how back in the 60s and 70s being in the commercial letting business was the place to be. Now seeing so many shops and offices that are empty commercial letting must be a nightmare.
Landlords are literal rent seekers. Their only contribution is capital. They claimed their very high returns were due to their genius. They can learn the hard way.
This is such a dumb comment.
Your choice of stock images is so impeccable 😂😂😂
In my city we have a bunch of landlords who have failed to invest in the upkeep of their properties yet still charged high rents due to the location of these buildings. They are finding now that tenants even if they want to stay in the CBD are going to more modern buildings with smaller footprints.
Those landlords should consider getting a job to pay those mortgages now that their tenants aren't paying it for them!
But stealing money from workers is my job. 😧
@@TheModdedwarfare3let others use your car for free rides. You aren't doing it? Filthy car owning capitalist.
Marxist
Smaller individual landlords often also have jobs. However, if they've only pledged their property as collateral against the loan it may be more beneficial for them to just let the bank take it if its value and cashflow has declined enough. Some might argue that it would be more ethical to keep paying from their other sources of income but that might depend on the loan. If the bank is taking into account that the landlord isn't pledging to keep paying when the property investment fails they probably charge higher interest rate to reflect that.
@@zbrown72 don't threaten me with a good time
Convert some of that office space to residential maybe?
Immigrant housing.
You could even market it to the office workers still working in the building.
@@nmccw3245 in expensive business districts?
Seems like it won't be too expensive soon. 📉
@@samsonsoturian6013 - may not be expensive for long. Everything changes and expensive is relative.
When markets were tight for office space in New York it was time to let Free Market Capitolism flourish. Now we see this work can be done at lower cost locations such as home, the need to be in the office disappears and market values drop. Am I correct to assume both real etate investors and banks will ask to socialize the loss via the tax payer?
banks asking for bailouts? That's not even a question, you know the answer is yes
It’s happening in nz too. Big old stores shutting down
Saw it in Wellington, big empty buildings
Gday mate, how's the weather down under, don't let the crocodiles get ya
More hyped for this than the new Nolan premier.
What's interesting is how much cities are invested in subsidizing commercial landlords who have an interest in artificially inflating rents way above what the market will bear, as opposed to letting a natural market correction happen to set prices lower than they are.
They get to charge higher property taxes that way. And the building owners get to use the increased value of their property to get more loans. It works as long as the building value just keeps going up. Interestingly enough, suburbs are also subsidized but in a different way: The initial financing for suburbs comes from state and federal governnent but the wealth generated by the suburbs is not enough for the city for maintenance of the infrastructure. But in the short term new people moving increase tax revenue until the infrastructure has to be maintained so you have to keep building more suburbs to maintain the old suburbs. Both the residential and commercial have their own version of ponzi schemes.
@@DKNguyen3.1415 yeah the ponzi-like cycle of the suburbs has basically bankrupted my city
@@DKNguyen3.1415 Great comment Dan
I want a video on this!! Do share!
I like your work Patrick, it has helped me to look deeper into finance and be more wary of the red flags.
Is this why Elmo has been so insistent on getting his workforce back to the the office?
I love how some media make it seem like it's some sort of concern for the people other than landlords/people who benefit from the cash-flow around those properties.
For every thing I no longer pay for working from home the money flows different direction - since everyone now drives cars, less people buy horses - it's just progress. Yeah - I no longer pay for the food at my workplace, but I simply order some to my home from multiple local businesses and the money keeps circulating - everyone is happy (maybe except those landlords).
The food is also cheaper this way, since no one can leverage the convince of being close to my workplace against my wallet. This is just to counter the statement about local restaurants being hurt, but of course the benefits for employees and society are far more reaching - it hurts mainly people who have a lot of money and leverage it to get even more - won't feel sorry for them any time soon.
You are typical communist idiot. The biggest investors in this landlord companies are not some "evil" billionaires but pension funds where average Joes have their money.
Except the possible chain of bank failures and subsequent economic downturn might affect your life.
@@franciscodanconia4324 As if those are the OP's fault or even within their power to influence. That would be up the individuals controlling hundreds of millions of inflated dollars of investments who couldn't care less about OP's situation.
@@franciscodanconia4324 Any bank that can't survive a downturn in one part of the real estate market deserves to fold. Of course, the government will probably bail them out, then it really does become everybody else's problem.
Less people buy horses... Neigh-bours? 😅
let them eat cake
Online shopping, remote work, commute times and gas prices enter into this. A problem in many places is the wage base isn't high enough to support commuters or higher rental and ownership prices for the labor force. This has come up as a problem in my city, Houston, and it's a problem in many metro areas of the US. Not just California and New York, but Florida and some others.
Yes. The miracle of engineering our lives around the automobile is now bearing the hard unintended economic consequences.
Every time real estate market gets hit, an angel gets wings
I love this 😂❤😂❤😂❤😂❤
This is happening in Ireland as well. Rates too expensive as are leases, most don't cash to start a business, the government are beginning to cram these with Migrants. Like fucking barracks.
ghetto offices lol
Gonna end up like those towers in the Karl Urban Judge Dredd film.
No they aren't you mope
We need to convert these useless office spaces into apartments.
In most cases this is not really possible
who's "we"?
@@marcogenovesi8570 it would just be expensive. But surely cheaper than building a new apartment block. Depends how cheap the developer can purchase the office space for redevelopment. So I guess it will only happen once the price crashes
@@hillbilly4895 me and u babe
Yea, the residents should pay for the conversion so illegal immigrants can live rent-free.
I used to commute 2 hours a day to my job, but quit and have been working from home for 20 years. So glad other people are adopting this lifestyle too. Stop wasting your life and money!
Also, who enjoys working in a noisy cubicle? Anyone? I thought so.
I wonder how difficult it is to turn an office building into an appartment building. That would make most sense given residential rent is still going up while office rent is going down.
Government Bureaucracy makes that nearly impossible. They have zoning laws in place and act as if it is impossible to change the laws
As soon as the laptop computer, the mobile phone and email became sensible and actually useable, I realised renting anything but an occasional "show" office was going to be pointless for any small business. So I put the savings into buying larger houses to live in. A complete win in terms of lifestyle every time. Haven't rented any offices since the late 80's or early 90's as a result, and my current "office" is 1 metre from the beach, and has a rather dramatic view of the Indian Ocean instead.
I may have missed it but the rising crime and huge homeless influx prevalent in American city centers certainly has a negative effect. People working from home in safety and cleanliness versus riding a dystopian subway/or battling a nightmare commute while dodging filth and predators to get to and from work - only a lunatic would voluntarily do the latter.
I just wonder how the poor people in the city living next to those criminals will be further impoverished by the money flowing out if the city now that businesses are leaving, taking their well-paid employees with them. The poor may lose their jobs which serve the office workers.
Well putt. Plenty of empty commercial properties here in Dublin.
Turn them into residential property! Lord knows we need more of that. It would be reasonably cheap too. Most of construction has already been done. This way everyone wins: more homes for people, employment for tradespeople doing conversions, new revenue for landlords and GDP uplift for the economy.
You have no idea what godly amount of retrofit would be needed for plumbing
@@LincolnLog good point it would probably be crazy and the water pressure would be trash. However, it would be more cost > more money for working people > more GDP growth.
There should really be a vacancy tax. Force the landlords to either lower prices or convert to residential if the property remains vacant for too long.
Sadly the private equity firms own the gov so that’s a non starter
I don't agree. The lost revenue from vacancy should already provide the appropriate level of incentive for the landlord to find a tenant. Also, I suspect that landlord often would be willing to convert to residential if they think they can earn more that way. However, zoning may not allow that. It might be enough to just change zoning such that it allows for such buildings to be used both for commercial and residential uses.
Says the communist.
@@seneca983 No. That's too idealistic believe it or not. In places like NYC the inflated property values are used as collateral. That's why they prefer to charge extreme rent for dilapidated properties. They prefer to keep the rent high so the property value doesn't get devalued, even if it means it remains vacant.
@@DKNguyen3.1415 The situation where rents can't be lowered due to valuation concerns exists but I think it's misleading to say the landlord *prefers* to not lower the rent. Rather, they might *prefer* it but their loan conditions prevent that. In such a case, hammering the landlord even more with vacancy tax doesn't help because that doesn't make their creditors accept a lower equity-to-debt ratio.
Loan to value used to be a big thing. Basically it locked in high prices.
A crash in commercial and office real estate can only be a good thing. The market doesn't operate properly as even with high levels of vacancies rental prices don't go down as they should. And in places where there's zero demand commercial landlords don't reduce rents.
Reasons why this might be. Property is a currency and 'asset' for some, for those who've borrowed banks won't let landlords reduce rents to sustainable levels, and finally in the UK government sets business rates and has and likes a system that bakes in ever higher valuations.
TDLR: The property is collateral and reducing rent devalues the property which causes the loan to be called in. They would rather keep the rent high even if it means it remains vacant.
I see a multitude of office-to-condo conversions on the horizon
Didn't expect to see my apartment in a Patrick Boyle video, but here I am.
Are you telling me that landlords are having problems?
I see this as a win.
Hi Patrick! Great content, thanks for all you do!
So glad you're back Patrick.
Let the dominoes fall... I'd like to own a house one day!
Is this why my company is making me go back to office
¡Suerte en España, Patrick!
Crime, drugs, homelessness and office workers not coming back to the office.. all driving commercial property inside expensive cities to rock bottom. Who is going to snatch all this real estate up, on the cheap? Sounds like a consolation of the real estate market
This is why the are pushing against working from home so hard.
It is a *lot* of tax revenue and a *lot* of commercial activity and a *lot* of wealth.
Thanks for your videos, Patrick! Love your work!
If they had spent money on public transit to and from the city rather than expanding highways, maybe people would be more willing to visit cities out of liesure rather than just when theyre forced to
Specifically talking about DC here. I know plenty of people who like visiting DC for events, but few who ever do. Top reason? Traffic.
Here in Toronto we are building light railways and new subway lines, projects that come in 6 years late and billions over budget. But the alternative is the hollowing out of the downtown, which seems to be the fate of many American cities - whose suburbs will soon look like what is left of Detroit. Maybe if all the new Americans entering at the southern boarder were 'encouraged' to move to rural states (lots of empty space in Mississippi, Arkansas etc;).
@@martinellis7156 why would they if Toronto cant handle them do you think rural area could .....
This is what we call a bubble in commercial real estate.
It's like a little part of the "bubble of everything".
Bubbles will always pop if you keep blowing air in to them that's just how they work.
Seeing you dedicate your life to the field and finally get the recognition you deserve is awesome. alot of insightful stuff
This move away from working in the city has had a benefit to transit in some ways. A few days ago, Seattle's commuter rail service (Sounder), announced that due to decreased ridership they are looking at expanding to all day service as opposed to three round trips in the early morning and three in the early evening
they can just use the vacant commercial space to hold the new server's required to power the A.I. programs taking the jobs anyway
Mandatory working from office will happen before they let it become a bigger problem. Too many powerful people with commercial real estate
But they cant you see because if they can't make it a law and those companies that push for mandatory office attendance will be less competitive against companies that allow WFH. Thus companies that make it mandatory will have to sweeten the pie with higher salaries so it will get more expensive to have workers in the office in general
Thank you Patrick, your content is fabulous.
saw this coming for the last two years. in big cities, a large percentage will need to be converted to residential.
You sound like you've predicted 100 of the last 2 recessions
It's been brewing for the last 5 at least in the DC metro area. There are hundreds of new but vacant light commercial parks around here.
Why? Less people working in those cities means less need to live there.
With more inventory, prices will drop to a level attracting many younger workers who want to live there but can't afford to
@@AhmedAnassofu younger workers that will work where? If people work from home and most real manufacturing is offshored anyway, most people isn't coming back to the cities
Any banks that did the wrong mix of investment or loans in proportion with assets available deserves to fail just like any Regional insurance company would if it made the same mistake. That's why they made it a law for the insurance companies
Easy to say when it's not your savings going poof. Banks can't fail because they hold people's savings
@@BobbyAeros you can close the banks and take over the savings, so the people screwing up face consequences
@@BobbyAeros FDIC
There was massive overbuilding of office space the last 15 years, and this was also a big contributing factor…at heart here in the my part of the US.
Here in New Zealand 🇳🇿 the toll can be seen by the ancillary service providers that used to support thousands of drones working in glass towers, these days there are empty stores that used to be dry cleaners, and cafes, bars, fashion etc. it’s sad to see. The property sector here is very quiet on the vacancy rates, however anecdotal evidence shows towers half empty during the day ( lights not on) noticeably fewer pedestrians, quiet lunch times and cheaper parking. Even the trains and buses are running at 75% of pre pandemic levels. Most people are doing an 80/20 split where 80% is at home and 20% in the office. The next five years are going to be very interesting
Sorry Elon I’m not going back to the office.
Your funeral
@@samsonsoturian6013 Elon is going to kill me? That’s a little drastic.
@@UnbornApple dude, we all know you understand idioms
@@samsonsoturian6013 Even then I have no idea what you were saying.
@@GodwynDi He means you will be replaced with someone else.
We should thank the lockdown for allowing everyone to understand that work from home setting is the best thing. They did promote and said it was the best to work from home during the lockdown. Now no one wants to go back to the office. Commercial Real estate industry - Surprise Pikachu face
Another great breakdown video Patrick! 💪
Patrick's voice I could listen to for hours - I even listen to the sponsorship part rather than skipping forward ☺️
I am excited for office space to pivot to housing. Hopefully more groups can pivot before falling out. Lots of these cities with empty office could use more competition for housing
Maybe around one-third of office towers are fit for condo conversion. The footprint size of most office towers is too large for condo units creating units that are too deep/far from windows.
All one has to do is look at the girth of condos towers versus office towers to see what I mean.
Well my friend in Ohio. I don't remember the major city if it was Cincinnati but I'm almost certain it was. But he was a general contractor and his business partner was the money man/deal maker. My friend the general contractor would come into a building the partner would buy and renovate the building. The first floor and sometimes second floor would be built out to the needs of a long term lease holder. The third and fourth floors would be small offices like a small legal office or a property management company. The next floor above that would be a laundromat because the floors above the laundromat would be apartments. The apartments didn't have washer and dryer hookups so the laundromat being used was almost a guarantee. So I'm starting to think what this guy started doing 15 or so years ago might be the solution to commercial real estate by basically making the building a hybrid type setup of having some commercial needs such as the bottom two floors and the two floors of small offices but meeting the needs of real estate/rentals with having the remainder of the building rented out as apartments.
And adding fuel to the fire is the crash of retail and malls as online becomes the preferred method to shop.
things gettin worse when those bosses requiring 100% presence in the office refuse to pay rent for the newly acquired company. .. for whatever reason.
Great content, Great analysis, possibly the best provider of financial information on any media platform.
I like this guy’s cerebral accounts more then his current events stuff. The tulip bulb video is amazing
Long awaited video! I was working on my analysis over last few weeks and couldn’t wait to hear your take Patrick. Well done again.
My husband works for one of the big tech companies in Texas and has been working from home full time for the past 13-14 years. Recently, employees have been told that they need to come in 3 days a week. There has been push back and in my husband’s department it was winnowed down to one day a week. All this after the creator and head of the company (last name rhymes with “bell”) was captured on video a few years back saying that they’ve proven that remote working works and that there is no need for the traditional office work model in these modern times. Hmmm 🤔…I wonder what changed his mind. Could it be some more tax breaks from the city that they are located in? Also, employees that live more than one hour away are exempt. But, from reviewing the history of the frequent cycles of layoffs, those that live farther away are often the most vulnerable.
With current and future available technologies, we can work productively remotely for most positions, regardless of what experts say being in the office creates teamwork. It's not true, its about managers wanting to monitor and control your activities, lack of trust
💯💯👏👏
The manager is an unnecessary position if the team is competent self-motivated and responsible.
I'd say that the reason downtown Minneapolis looks empty of office workers now is because it looks scary. I drank hard for 25 years and lived in Seattle, San Francisco and 4 smaller cities, in Minneapolis we have a very nice jail so there is no deterrent for clowns not to clown around.
Good luck with your Spanish!
Always a pleasure Patrick, thankyou 🙏