The world’s empty office buildings have become a debt time bomb
bloomberg.com
bloomberg.com
Those words in that word rarely give me confidence in an idea.
Let's start with the fact that there are no "perfectly good" airplanes, then we can debate the wisdom of free falling from 3Km.
There's still great demand for premium office space, but your average office building is going to suffer.[2]
[1] https://www.nytimes.com/interactive/2023/03/11/upshot/office...
[2] https://www.curbed.com/2023/04/270-park-avenue-jpmorgan-chas...
What's going to happen to cities with downtowns that are nothing more than a collection of office buildings and the businesses that support the people who work there?
Yeah, that's the issue.
I'm sure there's plenty of demand for commercial space on a lower rent. Commercial space is much more than offices, but those things are priced so that only high-margin artificially high-density knowledge work can afford them.
Our modern cities are clearly not economically viable (proof of that is that people can't afford to live in them), so yeah, something will break sooner or later.
No, that's not sufficient proof. You'd need unaffordability, and high rates of rental vacancies to prove that. Most of the unaffordable cities have near-zero vacancy rates.
"That place is too crowded now, nobody goes there anymore."
Yet, that's not the case. There's an economic pull to cities, the are, on the net, more productive than the countryside (Because the proximity of people makes the cost of bringing goods and services to market very, very low.)
The cost of land, in the long-term, rises to meet the economical productivity of an area. The reason that cities are so damn expensive is because they are productive.
Well, rent/sqft is dropping rapidly, like it or not. The housing crisis felt across north america has never had easy answers. But we're seeing a possibility for incentives to come into alignment with increasing the supply of housing. Even if that means tearing down buildings -- because if you don't, you get squatters.
* Lots of companies still using office space migrate to new office towers.
* Older office towers get turned into housing.
Will that get us there? I'm not sure. Of course, banks will still not be so happy, because a lot of this newer stock that would have rented at premium commercial rates is going to have to go a fair bit cheaper.
(The other thing is-- if some of the older office stock gets turned into housing, the demand for commercial should go up, too, because it's easier for your work force to live close to work... but unfortunately, all of these corrections are on a timescale of 5+ years).
Some commercial space will have similar issues with air conditioning and power.
I'm often amazed when Big Brains trot out the "turn offices into residential!" without for a second wondering where people will shit.
it's become a dirty word, but turning these buildings into SROs / low-cost rental units might bring back the artists and musicians that have been sorely missed from these areas, while providing people who don't have a credit history or first month + last month + security deposit a place to stay in a place that charges by the night instead of by the month
much easier to turn an office into a coliving space with communal bathrooms, dorm style accomodations, and large cafeteria kitchens anyway
The bellwether we have for the health of the UK, or at least London, is train and tube usage. It has, apparently, returned to almost 100% of pre-COVID.
That's not to say that London's commercial properties are fully reoccupied, they're not, but London is perhaps doing slightly better than US cities in this regard.
Having said that - HSBC is moving from Canary Wharf back to a smaller building in the City (of London) because of the change to WFH: https://www.bbc.co.uk/news/uk-england-66019180
A car is a machine to provide negotiating leverage in real estate markets.
Dense urban centers, while awesome in many ways, easily lend themselves to the development of grassroots real estate cartels made up of property owners who block new construction to profit from real estate appreciation. As this occurs people are forced further and further out to find affordable places to live. Eventually the jobs start to follow, leading to tax base collapse and urban decay. This leads to a death spiral of urban decay, crime, and population flight.
Then the city gets cheap and people start to move in again. Repeat cycle. Cities get cool -> people move in -> cities get expensive because you can't build -> people move out -> cities collapse.
There are places that seem able to avoid this cycle, such as Tokyo, but AFAIK that relies on a different kind of governance regime that takes zoning away from local bodies and enforces a uniform pro-density zoning code at the city or even larger scale. Basically you have to break the NIMBY cartel. It also involves very proactive transit policies that build out transit to match density.
Of course it could also be due in part to Japan's declining population, which makes it pretty hard to have real estate inflation.
Now that's a good insight.
It's amusing to read the comments from commercial real estate owners. There's a huge sense of entitlement. If they're losing money, somebody else must do something to make them stop losing money. Immediately.
The commercial real estate business did this in 2006-2008, and in 1999-2000 in San Francisco. The mall industry has been shrinking for years. It's not the end of the world.
Many homeowners have the same attitude toward their home value. If their home value is going down, politicians need to do something. It's part of why reform is so hard. It's political suicide to do anything that could reduce home prices for existing home owners.
Real estate appreciation is basically an entitlement. I fully expect a bailout for commercial real estate.
Maybe this is how we get to the stars. Warp drive will be invented once the final campaign to allow infill development on Mars falls to a NIMBY campaign to preserve the character of the planet. (Actually I think something like this is a plot point in Kim Stanley Robinson's Red Mars novels...)
I don’t think there’s any way to square the circle of cities being nice places for middle class families to live while also having a right to camp on the sidewalk and urinate on the train.
I wish we could solve zoning and permitting and just build our cities up.
Lest people think that building up necessarily means skyscrapers, it doesn't. You can build a six-story building without any of the extreme engineering or exotic materials that skyscrapers require. Paris, Barcelona, and Amsterdam all manage high levels of density where the average resident will be living in a building of approximately six stories or less.
Some of the steel towers have their cheaper apartments in wood podiums; have to be careful.
I live in a 10-story condo. 9 or 10 stories seems about the lowest not to be made out of wood. Even these are very rare compared to <=5 or >=15.
It seems intuitive to me that just because mid-rises are likely to be built using the cheapest materials that satisfy building codes doesn't mean it's impossible to build them with better sound isolation and other amenities that improve living there.
So can you provide some reason why mid-rises must be that way, as opposed to the Almighty Market just failing, as it usually does, to provide anything other than the cheapest least-common-denominator solution?
Insofar as people want to correct the Almighty Market on housing, they ban mid rises entirely. I don’t think there’s a political constituency for “apartments, but good” and supply is way too constrained for developers to care. Maybe we could at least get some kind of testing/disclosure of acoustic properties since it’s so hard to tell on a tour.
Perhaps we should learn from other places that have better solutions already? E.g: Japan? Singapore? etc.
Somehow many western countries have gotten stuck in red tape and the inability to learn from other cultures.
Downtown is a central location that is equally bad to car-commute to for everyone. Suburbs make for okay car-commutes for some people, and utter hell for everyone else.
You can fix downtown commutes by building out good transit networks, but there's no real way to solve the suburb-to-suburb commute problem.
----
And no, 'Just move from your suburb to the one that has the office park' doesn't work. Moving costs 6% of realtor fees on <absolutely insane house prices> + a mountain of effort and stress and other money. All for a job that might lay you off/that you'll leave next year.
Your logic doesn't really follow.
Assume that you can't develop cities any more and growth is stifled - this isn't really happening nationally - it is in some cities - but let's assume it's happening nationally anyway.
Office values would still go up (nominally), as long as the city itself doesn't lose its ability to generate income in real terms.
Office values are going down because 1) interest rates went up, 2) the demand for office space went down (no indication this was going to happen before the pandemic). And that's really it.
The majority of high paid workers live near cities. In most cities, there isn't just one nice suburb where all the workers live. The workers are spread out all over the metro (including - mainly - in the city itself), and downtown is the only convenient place.
You can't easily just open small offices in the suburbs because its unlikely the entire team is in that suburb. They're probably spread out across the city.
You either go to the office (in the city) or you don't (less demand for office space). Or you work at a boutique company where everyone lives in some suburb randomly (outlier).
Karen From The Suburb has always wanted everyone in the company to commute to an office park in her suburb so its convenient for her. It's not going to happen now unless Karen From The Suburb becomes CEO.
We'll either RTO to offices in the city, or we'll keep working from home.
The future isn't more office parks in Calabasas and Marin and East Hampton.
The whole era of Route 128 computer companies never had material real estate within the city limits.
It's just a technicality of Boston not eating all the surrounding small cities like most larger cities eventually did.
The peninsula in The Bay is decidedly suburban - but it is sandwiched between two of the biggest cities in the US.
I think for most it is the other way around. They want to work close to where they live.
I know redeveloping commercial buildings into residential is very expensive and difficult, but if/when these large commercial landlords do eventually get bailed out, I hope any assistance is conditional on converting buildings to productive uses like residential.
There were subway ads touting how convenient Chase was with 3k locations in Manhattan alone.
But cities that want to retain vibrant downtowns should consider imposing some sort of vacancy tax on commercial real estate. That would give landlords an incentive to lease their space out at a lower rate rather than waiting for a more lucrative tenant to come along.
If you lose $100, and you get to deduct that $100 loss, then that saves you the taxes on $100, but unless the marginal tax rate is somehow greater than 100% then you have still lost money.
Where I live this has also shown up in the retail/office split: some of the loudest voices calling for the end of telework are the same real estate moguls who jacked the ground level retail rents up and are now surprised that most of the good restaurants out, and most people don’t go across town for chains. They could afford that when all of the offices were booked but now most office workers are asking why they should be taking time away from work to buy mediocre $16 salads.
As usual with financial instruments, it's probably the result of a model being applied and the limits of the model institute some perverse incentive that is not rational.
In this case seems that the convoluted way of tying up property value to last rental price, and using that proxy to extend margin for loans is where this model breaks down.
Investors know that book values are usually stale. They're rarely used as a primary justification for valuation except in industries where mark-to-market is common like financial institutions.
Real estate investors tend to focus on Net Operating Income, which a vacant property won't generate, and Net Asset Values, which are based on market values. Sophisticated investors and lenders aren't going to be fooled into investing in it based on some historical or hypothetical value. Cash flow is important.
If rental properties really were sitting vacant because managers were hoping to preserve book value through an accounting gimmick, I would think property manager that focused on actual cash generation yield would drive them out of business.
So long as the payment can be made at all, it doesn’t seem like people look that hard if the space is vacant or not. Usually only the ground floor is retail.
* Posted rents are sticky, in that they are the basis of the negotiation for the next round of rents, and especially so for commercial real estate where leases are multiple years long and landlords often throw in renovation for leasees. Banks would prefer a space be empty rather than lower rent and then you have to negotiate from a lower base, and getting another tenant would mean having to rip out everything you put in for the current tenant at your own cost.
You see similar issues in multifamily where landlords would rather offer you "X free weeks" instead of lowering the actual rent by an equivalent amount.
If your property value dropped (with last paid rent being the proxy for this), you'd be liable to be margin called. If you're fully vested on margin in something illiquid like real estate, then it very well might be better to have a few vacant properties than be forced to liquidate to cover your margin balance.
Obviously though this has the makings of a real estate bomb, as a few forced liquidations could set off a cascade of value collapses.
At a high level commercial real estate valuation cares about the cash flows for the entire building (usually over 10 years) and a discount rate to get to a number on what the building is worth. When we see empty space, we think it's not making money, but all landlords assume that a space will be empty at some point and for some amount of time, so that's already baked into those cashflows.
Without getting into the specifics, you'll generally push out your assumptions on leasing that empty space rather than drop your price on cost of the space. Pushing out assumptions typically means taking a slight hit because the cashflows you were already expecting are just hitting the books a little later. Dropping the cost of the space generally decreases market value, so that makes all of the space in your building cheaper which has a much more significant impact on the cash flow for the entire building, rather than just one space.
The other significant factor is that landlords typically have significant upfront costs in base building improvements and free rent credits that they give to tenants. This means that there's a certain amount of time, generally a few years, where the landlord has paid out more money to the tenant than they've received. Landlords need to be confident that the tenant is going to be paying rent beyond that break even point, or else they've lost money in addition to losing out the ability to rent it to another tenant and any legal fees associated with evicting a tenant.
Between how valuations are structured and needing to hit that breakeven point with a new tenant, there are relatively few incentives for landlords to just "lease the space".
At a certain point, it’s expensive and difficult enough that you’re better off demolishing and rebuilding. There was a viral thread about this the other day: https://twitter.com/rossiadam/status/1672216345901932545
But still, we seem to fundamentally be at a place where we're going to need more housing instead of office space, so we need to make the transition at some point. For example, the new tallest building in Austin, TX, will be the under-construction Sixth and Guadelupe building. This building was designed as half residential/half office. All of the office space was originally leased to Meta, who subsequently pulled out and is now trying to sublease ALL of that space. Seems like it would be much better if they could just turn the entire building into apartments. Despite a recent pullback rents and housing costs in Austin are still completely nuts, and the additional housing stock would very easily be taken up.
As I understand it (but I'm not sure how applicable this is to any specific place), landlords can write down a loss set by either the last rent they received or the market rate in the neighborhood. If those losses are offset by gains elsewhere, they can zero their tax bill -- which, for landlords with diversified holdings, may be very large.
https://www.canada.ca/en/revenue-agency/services/tax/busines...
New York: https://www.tax.ny.gov/pit/letters/rental-loss.htm
If only you could do that then I might still be a landlord :-)
Do not _hope_. Write to your elected representatives, en masse, and demand they do this in any legislation written about the matter, or you will remove them from office.
Commercial tenants tend to have very long term leases, order of 10+ years. So attracting a tenant through lower rents has a dramatic effect on the long-term cashflow of a building.
Imagine the salary of your next job determined your salary for the rest of your working life. Would you prefer to stay unemployed or accept a below-market salary?
But if what happened with SVB is any indicator, I am sure all the large commercial property owners will get a bailout. Small ones will be on their own.
As for the Cities themselves (property taxes), I think this is were issues lie. Maybe time to think about selling municipal bonds ?
The government? Sure... print more money.
The problem is that if you do this every time, you are effectively entrenching the current power structures of society. This isn't a bad thing if those power structures are good - or necessary. But ... it's obvious that repeatedly doing this benefits a specific class of individuals (capital holders) by capping their downside. Capping the downside of existing capital holders also caps the upside of non-capital holders by creating an uneven playing field and eliminating opportunities available to those with "clean" balance sheets.
There's less than zero chance any of these downtowns will be covered to residential. Offices and homes have very different needs, you basically can't convert.
Oh come on, we can do far more than can kicking. There is always war, revolution, and decades of economic hardship!
That one is can kicking.
Its an argument that creates a bailout of whoever we want, as long as they're within 6 degrees of SVB. [^1]
A huge rhetoric win, a loss for understanding.
[^1]: https://en.wikipedia.org/wiki/Six_Degrees_of_Kevin_Bacon
After all, startups take venture capital money from the rich and spend it primarily on t-shirts and catering - which primarily comes from small businesses who hire local unskilled labour.
Marx would be proud of the FDIC for their work.
The depositors, regardless of wealth, were lied to about the safety of their funds. It was roughly fraud - it wasn't their fault - they didn't take excess risk. How is it a bailout to let them keep their money?
And if the FDIC is really going to offer unlimited depositor protection, they’re going to need a lot more than the 100-200B in the DIF.
I disagree with that characterization.
The FDIC refunds depositors using money (assessments) they collect from member banks. So in essence, unless the government does something special to inject funds directly into the FDIC, the remaining FDIC member banks would likely see their assessment rates go up to cover the costs of these bank failures.
From https://www.fdic.gov/news/speeches/2023/spmar2723.pdf:
> "any losses to the FDIC’s Deposit Insurance Fund (DIF) as a result of uninsured deposit insurance coverage will be repaid by a special assessment on banks as required by law."
My point is that the FDIC refunding more than 250k wasn't a bailout of the banks because FDIC insured banks are the ones who fund the FDIC.
FDIC assessments and taxes are different. You can over-simplify mentally to a tax, but that doesn't make it true.
The FDIC runs more like an insurance provider than a run-of-the-mill government agency.
How is it a bailout to let them keep their money? At best its an "internal banking restructuring in favor of the depositors".
SVB's depositors were primarily businesses with more than $250,000 in an account. Over 90% of depositors(google for exact percenatge) had more than 250,000 in the account.
So who was the bailout for? Not the average guy on the street...
> So who was the bailout for? Not the average guy on the street...
The "bailout" (badly named) was for the average people working at these companies. Their families that wouldn't have gotten a paycheck. The grocery stores they couldn't have bought from.
Payroll accounts should be 100% FDIC insured the same why it works in many other countries.
Perhaps, but they are not so it is a bailout.
"The "bailout" (badly named) was for the average people working at these companies."
That jumps to a conclusion and fails to recognize the business owes a debt required to be paid by law to the employee for the work they have performed in the previous weeks.
I don't want to see banks fail like any of you folks, but the reality is responsibility lies somewhere and that somewhere isn't in more FDIC insurance. Business management is just as culpable as the banking staff in maximizing profit and maintaining proper liquidity and insuring working capital is secure.
Yes, and this is why $20 BB from SVB investors, hit $0. The bank management and investors were did have to live up to that responsibility.
Should they have to do more? Yes. There should be compensation clawbacks from the C-suite over the last 5 years or something. Lets see where this goes.
Getting a Slack from the CEO on Saturday night saying basically "we *should* be able to pay you this week, I think" is fairly nerve wracking.
The truth is, this is the tip of the iceberg. Don't be sailing on the Titanic since you have been warned.
Comments like this distract from real bailouts and moral hazards.
Then the venture capital industry and startups decided to ignore these risks and put massive amounts in one bank.
Then they were made whole at 100 cents on the dollar, when it probably would have ended up at 85 cents on the dollar on the amount over $250k the other way. This is pretty much the definition of moral hazard: why diversify banking now?
(Of course, I've always thought that the government should have come in with a dividend of 70 cents of deposits really quickly, to allow everyone to keep operating and reduce uncertainty).
My employer (a nonprofit that I care about) banked with SVB; so my personal interests are not aligned with what I believe and what I'm arguing.
The government caused this, so it's not unreasonable to expect that the government pay for the damaged caused. This was a completely predictable outcome of aggressive rate hikes - banks buy a whole lot of t-bonds.
T-Bonds can lose money on paper. If someone buys a 1% 2-year T-Bond for $100 (expecting $102 in two years), and the next year, rates go to 3%, the book value of that bond (what it can be sold on the open market for) is now $99 because of how bond values are determined.
The risk of this exact scenario playing out across the banking sector is likely the reason why the Fed took so long to raise rates (and the drastic, reversal of course when they tried in 2018).
Discounted cash flow analysis / net present value is the one thing that we have in finance that's really a fundamental/intrinsic thing.
No. You don't just get to get the government to subsidize all your duration risk. You need to properly run a bank. You can buy shorter duration bonds in order to mitigate the risk from interest rate changes.
Call me silly but opening a bank account with the 17th largest bank in the US is not risky or reckless behavior in my book. It's nothing like Wall Street in 2008. They're bank accounts ffs. People use them to run businesses to earn their money. They don't become rich off bank deposits. At best SVB might have given some discounts on other products for keeping large balances. If they did, they should also have advised splitting the deposits into $250k accounts or done it automatically.
> why diversify banking now?
Why do it at all? Is any value produced by doing that? If I have $25m in 100 accounts at one bank, it's unconditionally insured. But if I put it all in one account at that same bank, it's not. It's the same amount of money, and the same level of risk as I'm the only owner of all that money. How is that logical?
Public sentiment has colored this situation differently because SVB account holders are largely wealthy individuals and companies.
Bank accounts are a utility. They should just work.
Insurance is by ownership group, not by account.
It eliminates the most proximal cause to the SVB collapse: strongly correlated behavior by large account holders. If banks have many account holders that are diverse, it's hard enough to get a panic that causes illiquidity.
The duration risk would have still been an issue, but a far smaller issue without the need for panicked liquidation. (Even with a healthier balance sheet, most banks would struggle to endure a bank run like SVB).
> Let account holders get on with more useful work.
If you have a massive amount of money, there's a little bit more work to do than dumping it in a random bank.
Ages ago, when my firm had a $15M bank balance, it was close to trivial to work with a vendor to spread the balance among 20 banks. We were still not fully insured, but we had significant insurance and limited exposure to any individual bank failing. 20x the risk of failure, but 1/30th the cost should one happen. We could have also bought some treasuries directly.
> Apply those increased premiums retroactively to all the banks that failed recently, if feasible.
How do you charge a bank that failed and doesn't have the money to pay its depositors money?
I'm in favor of a small increase in the insurance coverage. Maybe $500k or $750k. But I don't think it's good to make bank accounts equivalent in safety to treasuries up to any amount but more liquid.
At least in the most recent cases, they have the assets but not the liquid cash.
> it was close to trivial to work with a vendor to spread the balance among 20 banks
Why can't banks offer a product like this themselves? Or do it automatically when an account balance grows too large? They could partner with other banks to do it.
Yes, but those assets need to be sold for less money to pay current account holders.
Or if you issue a loan based on receiving the value of the assets in a few years, you'll need to account for time value of money, which has the same effect.
> Why can't banks offer a product like this themselves? Or do it automatically when an account balance grows too large? They could partner with other banks to do it.
Many banks do. Comerica set us up with this product, but we had to ask-- because otherwise they'd rather have had all of our money.
(And even though Comerica got equivalent amounts incoming, for various reasons brokered deposits are less desirable to a bank than direct accountholder deposits).
It's not a normal supply/demand curve because the demand is not just lower, in a lot of cases it's gone and not coming back at any price.
Here are some searches I have benefited from reading.
https://mises.org/search-mises?search=bubble
https://brownstone.org/?s=%22financial+bubble%22
https://swisscows.com/en/web?query=%22financial+bubble%22+si...
Very tired of the slippery slope fallacy being employed by the commentariat (like Bloomberg) in support of their masters.
Design communities where people can walk to work, walk to the neighborhood grocery store, walk to the park...
It's all the driving we hate. I'd gladly work in an office again if I could walk there.
I will fight tooth and nail against having to commute ever again.
There are multiple workable solutions, and unfortunately most US cities aren't heavily invested in any of them. My city has very limited rail lines and it was only happenstance that my work was close enough to a stop for it to be a reasonable way to get to the office. Literal millions of other people in the metro area don't have that option.
When the tide recedes and all those investments pop, that should cause a major recession in the US and rest of the world.
A positive feedback loop will also exist, though, where due to the recession and belt-tightening, companies will defect on RTO plans and seek to get out of leases and office spaces, further intensifying the commercial real estate crash.
The Fed has definitely slammed on the brakes and will continue to do so until they create a recession and push unemployment significantly higher. We're still in a situation where nothing fundamental has changed about the US economy and if rates were dropped then inflation would surge again. And the only way that keeping rates higher doesn't break the US economy is if you believe that a decade of ZIRP didn't lead to a lot of bad investments that are funded by kick-the-can-down-the-road cheap money refinancing.
I do acknowledge that humans are social animals and there are benefits to face to face interactions, but these come at enormous costs. These costs aren't merely financial as so many people emphasize, but material. The material cost of cities on our planet is quite high. The amount of concrete, metal, glass, and other materials is quite large. With decentralization we would have an increased use of roads for logistical concerns, and we'd have an increased sprawl issue, but there'd be so much less traffic overall I think we'd have a net win on air quality. The next issue to tackle would be expressly limiting sprawl, and I have no idea how that'd be done.
EDIT: Comments have been that this would decrease production. this is entirely accurate. Most items today aren't made to last and we have become accustomed to hyperconsumption of low quality stuff. No doubt. Scale has alternatively raised the standard of living the poorest among us by insane amounts. There is severe good and severe bad that have accompanied this remarkable economic boom of the last 100 years. The thought that I really have regarding this is that Amazon has made it possible to distribute insane amounts of stuff to a distributed buying public and there must be a way to manufacture in the same way. I am not a logistics person, and I could be entirely wrong (I probably am), but it's a dream and not a proposal.
This sounds like a horrible vision for the future -- everyone completely separated, all interactions via video chat? All in the name of making sure we never have to leave our homes for convenience's sake?
If each worker has their own machine, that means the machine probably ceases to be producing when the worker is done. Coupled with potentially longer startup processes (many machines are way easier to keep running than do a cold start) it means these machines sit idle for most of their existence. This is sub-optimal.
If you centralize the machines, then you can trade off workers and keep the machines running. You then also potentially don't have to worry about startup processes eating into productive time as often. This is than a major efficiency boost.
On top of that, many times several different jobs might be related to the operation of that machine. You might need someone who specializes on cleaning the machines, you might have people specializing on the inspection on the machines, you might have people specializing on the day to day operations of the machines. Having that specialization can be a net benefit overall.
Think about repair turn-around times. So you've got a CNC operator way off in the middle of nowhere, super distributed. He knows the basics on how to use the machine, but maybe not a lot more. Then it throws a fault, and he doesn't know how to repair it or doesn't have the equipment and parts. Now he's going to call up the head office, who is going to dispatch a repair person from somewhere (maybe close? maybe far?) to come out to some far away remote location to repair it. Meanwhile, for larger operations they might have some techs on-site who can do repairs within just a few minutes and get the machine functional sooner. You can co-locate a smaller cache of spare parts for a larger pool of machines, because multiple failures is probably pretty rare. All that downtime avoided turns into productivity gains as the machine gets to functional levels faster and the CNC tech gets back to work faster.
And you may have a single operator who's responsible for keeping multiple machines going. Loading raw material, attending to alarms, etc.
To add to what you said, there's a concept known as "lights-out manufacturing" wherein the machines are continuously reloaded by robots/automation with raw materials (and if needed there's other automation to offload completed parts) so they can continue making parts even after everyone's gone home for the day.
An idle machine isn't making money.
The question is whether those were unusually that's or the start, and I do not have the data to know...
US banks weight in at $2T. The Commercial Real Estate market weighs in at 20T although only a portion of that is office buildings in cities.
It takes eons to clear out nonperforming real estate inventory. Just ask the Rust Belt.
Keep in mind that this figure doesn’t account for tourists, commuters, etc; but also keep in mind that over the last decade several large million+ square foot malls have opened in Manhattan itself (Hudson Yards, the Moniyhan station hall, the future Penn Station renovations, the Fulton transit center, the World Trade Center Oculus, etc.) The Hudson Yards one just lost its anchor tenant.
I put it to you that while you have taken one step back, you will get a clearer view if you take 10 paces back.
We are in the midst of catastrophic accelerating climate change. We are heading for a world that is 3-4º C warmer by the end of the 21st century, when children born today are getting to old age. That means the certain collapse of the West Antarctic Ice Sheet and worldwide sea level rise of 5-6 metres in those kids' lifetimes.
Now look at how much of these expensive cities and their expensive offices are build under 5-6m of current high tide level. All those buildings will be lost to the sea before they are paid off. All those investors will lose their money. All cities and city districts wholly located within 5-6m of mean sea level will disappear completely.
Just considering sea level rise, whole nation states will disappear. Whole economic sectors will collapse.
But it's not just about sea level rise. With 3-4º of warming, much of the tropics becomes uninhabitable. Most glaciers disappear; currently fertile countries lose their year-round water supply.
The Himalays are called the world's 3rd pole. 5 or 6 major rivers originating in the glaciers of the Himalayas provide about one third of all humanity with their fresh water.
All those countries become desert, even if only seasonal desert. All agriculture fails.
If you view the world in terms of money -- not a good strong robust worldview at all, but a common one -- then there are far far bigger financial threats looming than empty offices and bankrupt financial institutions that invested in them.
We should be tackling commutes by building denser cities with mass transit, not by having everyone with more space in the burbs.
Another point: it takes a lot more to heat and cool thousands of individual houses to human comfort rather than setting those thermostats back throughout the day and only managing the HVAC for densely packed offices.
I lived in such a city until January, in a dense medium-rise apartment block, with 3 forms of public transport available to me within walking distance. It had no heating system of any form, heated by hot water from the mains supply, provided by waste heat from a power station 40km away.
I worked from home from it from early 2020 for 3 years.
I'd prefer, for that purpose, that it were considerably larger and had a dedicated office space, or even a co-working space in every building or something like that.
I have never, even driven a car to work routinely in my life. I got my driver's licence at 37 and have not owned a car as a licence holder.
But TBH I personally did prefer going into an office. Almost everyone I know prefers not to, though.
So, you're right, but the two designs are not mutually exclusive, which you seem to be implying.
HVAC is a completely solved problem by just putting solar on roofs, especially for single family homes.
What we are seeing is that with the proliferation of broadband internet, information workers don't need close proximity to one another. Cities are now largely obsolete, unfortunately. They're a choice whereas before they were a necessity, and arguments about how much someone loves the diversity of a city to the contrary, the emptiness of these office buildings speaks for itself.
I personally don't want to forcibly stagnate development to protect what amounts to unrealized losses becoming realized. The numbers are big, and so the impact is big, but fundamentally all this is is nonviable business models failing. If your pension relies on office buildings being full, if your city based it's investment plan on information workers requiring proximity to something physical, it was not viable, and there's nothing anyone can do to change that. I won't be forced into a life I don't want to save a city budget or someone's pension plan. Am I cheering? Sure, a little, but mostly I'm just looking at the situation pragmatically and realistically and seeing what's in front of me. If your retirement necessitates me paying thousands in rent to overlook deadlocked traffic, commuting for an hour or corporations paying for floor space as what amounts to a frivolous amenity, you backed the wrong horse and will take a financial hit, whether I cheer or not won't change that fact one iota.
There are still plenty of physical-only things that cities exist for, and other benefits besides working. And when people talk about how much they love cities, office buildings are not the first thing that come to mind.
Cities aren't entirely nonviable, just nonviable in their current iteration from the current paradigm. Their main attraction is that you have to go there to make good money. If cities are to survive into the future, they have to change from that to being attractive to live in regardless of your source of income. The only viable jobs in a city are ones that require workers to be present for practical reasons, such as dockworkers and service workers, and cities have evolved into service economies that cater to information workers, which is nonviable in an age of global connectivity. To survive, housing has to be the largest market for real estate development. Cities have to be made more walkable alongside this transition. Most cities cannot afford to make such a transition because their tax bases would dry up and they'd go insolvent. Those that can, some of them won't make the hard choices before it is too late. I expect at some point some cities will do it and survive, albeit very changed and different.
My company had a sublease for 2 years; but Google says the average is 8 years for commercial leases. 2020+8 = 2028; which could align with the ~30% increases in vacancy rates; and climbing in 2023.
It is rapidly approaching 0.