CRE Storm: Over $800 Billion In Office Space In Nine Cities Could Become Obsolete By 2030 (Office Vacancy Rates Soar As Fed Went Crazy With Stimulus)

Confounded Interest ^ | 07/22/2023 | Anthony B. Sanders

[Kaiser8408a]

Thanks to The Federal Reserve, office property values have gone crazy despite rising vacancy rates.

US office space vacancies (white line) have soared since 2008 as The Fed’s massive monetary expansion (blue and green line) has not helped. But Fed monetary expansion DID help drive office prices! At least until 2022, when office space values began to fall. Notice that office values are falling as The Fed withdraws monetary stimulus.

During the regional bank failures in March, we directed our readership to focus on the next potential crisis: “CRE Nuke Goes Off With Small Banks Accounting For 70% Of Commercial Real Estate Loans.” By late March, Morgan Stanley warned clients of an upcoming maturity wall in commercial real estate, which amounts to $500 billion of loans in 2024, and a total of $2.5 trillion in debt that comes due over the next five years.

The current downturn in CRE could persist for years, if not through the end of this decade. Jan Mischke, a partner at the McKinsey Global Institute, along with Olivia White, a senior partner at McKinsey, and Aditya Sanghvi, a senior partner and leader of McKinsey’s real estate special initiative, published a note in Fortune, warning “$800 billion of office space in just nine cities could become obsolete by 2030.”

As fewer employees work in the office, demand for office space will fall. By 2030, such demand will be as much as 20% lower, depending on the city–even in a moderate scenario in which office attendance goes up but remains lower than it was before the pandemic.

Yes, the maestros of real estate asset bubbles (Yellen) and eventual deflation (Powell)!

[Kaiser8408a]

bidenomics at work!

[rktman]

🤔. Plenty of vacant spaces where we live but new stuff is going up at a steady pace. To also be unoccupied for the most part.

[dangus]

In all honesty, every one of these cities has driven off middle-class families by the lack of reasonable residential real estate. Conversion of such properties would be expensive (anyone interested in becoming a plumber?) but minor compared to their overall value. Imagine Americans once again living downtown!

[AndyJackson]

minor compared to their overall value

The value is the price you could sell converted units for in a free market less the cost of conversion. That value could be zero, it could be negative or it could be substantial. Whether it is above the cost that present owners/investors have sunk into it is a different issue and will probably drive how many otherwise insolvent banks will need to be bailed out by the taxpayer. The solution is hyperinflation so that everyone wins.

[KarlInOhio]

Imagine Americans once again living downtown!

Will it be called "new urbanism", "fifteen minutes cities" or a new name this time?

If I had more money I would buy a dozen or more rural acres and move out of the suburbs.

[cgbg]

Some Freepers have a plan—order the peons to commute into the office. They will obey.

Lol.

[KarlInOhio]

The solution is hyperinflation so that everyone wins.

Except those with cash, savings accounts, bonds, life insurance, fixed pensions or anything else tied to the dollar. Sorry if I missed any implied sarcasm.

I was watching a show set in the early 1960s where a character was buying a 5 room apartment in New York City for about what I paid for a car last year, about $32,000. And that's without hyperinflation.

[newzjunkey]

Turn them into homeless housing

[Leaning Right]

Bidenomics, plus urban crime.
It’s a very destructive one-two punch.

[butlerweave]

They say we’ll all be dead by then so who cares

[Bonemaker]

May the office buildings and filthy democrat cities they are in die a slow agonizing death.

Check that...make it fast!

[cymbeline]

“bidenomics at work!”

The article talks mostly about work-at-home and internet shopping.

It says “The Fed’s massive monetary expansion ... has not helped”.

I think technology is the main enemy here.

[FLT-bird]

Amazing isn’t it? They seem to think every employee is an interchangeable cog in the machine. Companies can just snap their fingers and replace anybody overnight. They must OBEY DAMMIT!

LOL!

[Eleutheria5]

Put the homeless in there. Lock the doors. Feed them and force them to keep clean, both physically and also free of drugs. Provide shrinks and meds to those afflicted. If one of them gets violent, keep the door locked ‘til they’re subdued.

[Magic Fingers]

That was the same disconnect I had. It was the availability of technology + lockdowns.

[StAnDeliver]

Schuck used IndyMac to intentionally unravel the residential real estate subprime market in 2008, not just to wipe out McCain's remote shot at the White House, but to cripple the GOP downticket. It worked.

You all hear me? IT WORKED. The market didn't crash, it cratered. The Great Recession ensued, and that yielded ... President Trump.

And it would work AGAIN, this time against the Democrats, if some GOP Senator with brass ones would de-leverage underwater commercial investors carrying empty skyscrapers, no back rent, and bad debt; and issue a new, 2023 "IndyMac" letter specifically to unwind the already-weakened global commercial real estate market -- the Chinese have so much bad paper, just light a match under their US CRE holdings!

It's time now for the handful of conservatives left in DC to stop d---ing around and kick the stool out from under Xiden and his puppet-state cadre. IF JUST one GOP Senator could find the b@lls to crash the commercial real estate market exactly like Chuck Schumer did with IndyMac, Biden might not even run again, in fact, he might very well quit. The strain of a market crash is second only to wartime presidencies -- in a wartime presidency, the enemy hates you, but in a market crash everyone hates you.

[Texan5]

“Imagine Americans once again living downtown!”

Gracias, pero no esta mierda otra vez-at least not in this area...

That has already been “imagined” by SA a couple of times over the past few decades-every time it ended up worse with sellers and buyers losing major money until now it is really hell, from what I hear from locals who moved back to the downtown area at the urging of friends there-supposedly it was safer than the country, doctor right around the corner, walk to the store, etc. All but one person moved back out here in less than 3 years and had only bad things to say-from trash and smells, the homeless wandering to pedestrian-unfriendly traffic, crime risk, high rent/mortgage payment, light pollution, sirens and noise 24/7 etc. Sounds like a dystopian nightmare-the only way that is going to make money is to convert it into homeless housing and ask fed to pay the homeless to go there...

[Boardwalk]

Biden’s America. That is usually my only comment.

[SaveFerris]

[CRE Storm: Over $800 Billion In Office Space In Nine Cities Could Become Obsolete By 2030]

I'd say in any given week, I do about 15 minutes of real, actual work. Peter Gibbons, Office Space