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Dec 6 - The 'office apocalypse' is upon us



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 2 months ago '16        #1
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Dec 6 - The 'office apocalypse' is upon us
 

 
Deserted downtowns have been haunting US cities since the beginning of the pandemic.

Before the pandemic, 95% of offices were occupied. Today that number is closer to 47%. Employees' not returning to downtown offices has had a domino effect: Less foot traffic, less public-transit use, and more shuttered businesses have caused many downtowns to feel more like ghost towns. Even 2 1/2 years later, most city downtowns aren't back to where they were prepandemic.

Not unlike how deindustrialization led to abandoned factories and warehouses, the pandemic has led downtowns into a new period of transition. In the 1920s factories were replaced by gleaming commercial high-rises occupied by white-collar workers, but it's not clear yet what today's empty skyscrapers will become. What is clear is that an office-centric downtown is soon to be a thing of the past. With demand for housing in cities skyrocketing, the most obvious next step would be to turn empty offices into apartments and condos. But the push to convert underutilized office space into housing has been sluggish.

Without more-robust policies to address failing downtowns, cities are going to start hurting. Even small declines in foot traffic and real-estate use compounding over time will lead to reduced tax revenue and sales receipts for small businesses, ultimately affecting city budgets. And while city planners are reimagining downtowns, the impact on cities' bottom lines has been devastating; in New York, for instance, the value of commercial real estate declined by 45% in 2020, and research suggests it will remain 39% below prepandemic levels.

Less economic activity in urban cores and a lower tax base could mean fewer jobs and reduced government services, perpetuating a vicious cycle that further reduces foot traffic in downtowns, leading to more decline, more crime, and a lower quality of life. For residents of many downtowns, ghost downtowns will be a visible infliction, and throngs of people crowding into a bus on a Monday morning will be apparitions of a recent past.

Deserted downtowns have been haunting US cities since the beginning of the pandemic.

Before the pandemic, 95% of offices were occupied. Today that number is closer to 47%. Employees' not returning to downtown offices has had a domino effect: Less foot traffic, less public-transit use, and more shuttered businesses have caused many downtowns to feel more like ghost towns. Even 2 1/2 years later, most city downtowns aren't back to where they were prepandemic.

Not unlike how deindustrialization led to abandoned factories and warehouses, the pandemic has led downtowns into a new period of transition. In the 1920s factories were replaced by gleaming commercial high-rises occupied by white-collar workers, but it's not clear yet what today's empty skyscrapers will become. What is clear is that an office-centric downtown is soon to be a thing of the past. With demand for housing in cities skyrocketing, the most obvious next step would be to turn empty offices into apartments and condos. But the push to convert underutilized office space into housing has been sluggish.

Without more-robust policies to address failing downtowns, cities are going to start hurting. Even small declines in foot traffic and real-estate use compounding over time will lead to reduced tax revenue and sales receipts for small businesses, ultimately affecting city budgets. And while city planners are reimagining downtowns, the impact on cities' bottom lines has been devastating; in New York, for instance, the value of commercial real estate declined by 45% in 2020, and research suggests it will remain 39% below prepandemic levels.

Less economic activity in urban cores and a lower tax base could mean fewer jobs and reduced government services, perpetuating a vicious cycle that further reduces foot traffic in downtowns, leading to more decline, more crime, and a lower quality of life. For residents of many downtowns, ghost downtowns will be a visible infliction, and throngs of people crowding into a bus on a Monday morning will be apparitions of a recent past.

The death of great American downtowns
The devastation of downtown commercial districts has been an unmistakable shift in America's largest cities. In San Francisco, the landmark Salesforce tower and other buildings have remained mostly unoccupied as the tech industry has embraced remote and hybrid work. In New York, Meta recently terminated its lease agreement for three offices totaling 450,000 square feet in Hudson Yards and on Park Avenue, taking a significant financial hit. This tracks with trends: San Francisco has faced office-vacancy rates of 34% to 40% in some parts of the city, while in New York about 50% of workers are back in the office.

Even in cities where more workers have returned, like Austin or Dallas, occupancy rates are still only 60% of what they were prepandemic. These shifts follow the unassailable stickiness of remote work; researchers for the National Bureau of Economic Research predicted that 30% of workdays would be worked from home by the end of this year, a huge jump from before the pandemic.

The increased cancellations of office leases have cratered the office real-estate market. A study led by Arpit Gupta, a professor of finance at New York University's Stern School of Business, characterized the value wipeout as an "apocalypse." It estimated that $453 billion in real-estate value would be lost across US cities, with a 17-percentage-point decline in lease revenue from January 2020 to May 2022. The shock to real-estate valuations has been sharp: One building in San Francisco's Mission District that sold for $397 million in 2019 is on the market for about $155 million, a 60% decline.

Other key indicators that economists use to measure the economic vitality of downtowns include office vacancy rates, public-transportation ridership, and local business spending. Across the country, public-transportation ridership remains stuck at about 70% of prepandemic levels. If only 56% of employees of financial firms in New York are in the office on a given day, the health of a city's urban core is negatively affected.

The second-order effects of remote work and a real-estate apocalypse are still playing out, but it isn't looking good. Declines in real-estate valuations lead to lower property taxes, which affects the revenue collected to foot the bill of city budgets. Declines in foot traffic have deteriorated business corridors; a recent survey by the National League of Cities suggested cities expect at least a 2.5% decline in sales-tax receipts and a 4% decline in revenue for fiscal 2022. Last year, Atlanta's tax revenue was projected to decline by 5.7%. Finding and retaining government employees has been a problem in New York, where public-sector salaries haven't kept up with inflation. Day-to-day operations and essential government services such as public transportation, trash collection, and street cleaning would undoubtedly take a hit from hamstrung city budgets.

It comes as no surprise, then, that in recent months the combination of a stagnant flow of tax receipts and hollowed-out downtowns has spooked city leaders. At a recent conference, the mayor of Seattle, Bruce Harrell, expressed concern about tax revenue. "The fact of the matter is there will never be the good ol' days where everyone's downtown working," he said. London Breed, San Francisco's mayor, told Bloomberg that "life as we knew it before the pandemic is not going to go back." In the National League of Cities' 2022 survey, almost a third of cities said they'd be in a difficult financial situation in 2023 once federal funds dissipate. In the event of a recession, things could look much worse.

While there's been a lack of demand for commercial real estate, the residential market has gone into overdrive. A recent NBER paper suggests the new space requirements of remote workers — space for a desk or office, or to accommodate the extra time spent at home — have helped cause housing costs to skyrocket.

The solution to the office-housing conundrum seems obvious: Turn commercial spaces like offices into housing. Empty offices can become apartments to ease housing pressure while also bringing more people back to downtown areas. But after two years, few buildings have been converted. Jessica Morin, the head of US office research at the commercial real-estate firm Coldwell Banker Richard Ellis, said there hasn't been a "noticeable increase" in conversions. Since 2016, only 112 commercial office spaces in the US have been converted, while 85 projects are underway or have been announced, according to CBRE's data. Despite the promise of new housing –– one recent study in Los Angeles estimated that 72,000 new homes could be built in the city by converting offices and hotels –– progress has been slow.

So what's going on? Simply: The costs to convert are often hard for developers to justify. Construction costs are a*sessed on a building-by-building basis and need to take into account structural issues such as floor layouts, plumbing, and window access. Residential buildings also have to accommodate shared spaces like hallways, meaning they generally have less rentable space than an office building. Rising costs of labor and increasing interest rates may dampen efforts to convert offices to homes and inject more risk for developers. "The cost of construction is just so high, and even if you set aside the specific issues related to conversions and just think about the economics of building anything, it's just gotten very difficult," Gupta told me.

Another barrier for office-to-residential conversions is local housing rules. To turn commercial buildings into housing, they would have to be rezoned — which requires input from community members and local officials — to meet specific requirements. Codes for everything from lighting to sustainability vary by city, presenting irregular hurdles in project costs and timelines. Housing developers may not want to put themselves in precarious political situations or go through resource-draining approval processes for a high-risk project with potentially significant financial downside.

Gupta's study suggested, however, that continually falling office values may kick off more interest from developers in adaptive-reuse projects. Despite their cost and complexity, they may be better than letting a building sit empty

To avoid a commercial real-estate apocalypse, cities will need to streamline conversions. There are several ways to do this. California has set aside $400 million for adaptive-reuse-incentive grants. New York state approved a $100 million fund for hotel conversions, but the stringent requirements led to only a single developer applicant.

Most impactful on the city level would be land-use planning processes that could help speed up conversions. Laws like the Adaptive Reuse Ordinance that Los Angeles passed in 1999 could help dispense with some of the more onerous city-code hurdles, like parking requirements. Gupta suggested that cities could also adapt their tax codes to make conversions more economically feasible by moving to a land-value tax or something similar. Federal initiatives could provide tax credits to developers to ensure buildings are readapted and could provide support for city planners to a*sist with redevelopment projects.

Overall, combating the death of downtowns requires a reworking of how we think about cities and the value they provide. The urban author Jane Jacobs proclaimed in her famous 1958 article for Fortune magazine, "Downtown Is for People," that ​​"there is no logic that can be superimposed on the city; people make it, and it is to them, not buildings, that we must fit our plans."

visit this link https://www.businessinsid .. alypse-2022-12
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75 comments
 

 2 months ago '13        #2
CheebaHawk21  topics gone triple plat - Number 1 spot x14
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Amen, and I hope it fu*kin stays this way. Ive been working from home for about 2.5 years now since the pandemic started. Not sure if I'll ever be able to sit in work traffic or work inside an office again.
+85   

 2 months ago '06        #3
bigkilla  topics gone triple plat - Number 1 spot x2
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Lower the rents then.

No sh*t no startup company wants an office when rents put a stranglehold on their budgets.

No one wants to live near the offices if rents are high as fu*k either.

There's literally 0 incentive.
+73   

 2 months ago '06        #4
bigkilla  topics gone triple plat - Number 1 spot x2
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Also this article is misleading

In New York, Meta recently terminated its lease agreement for three offices totaling 450,000 square feet in Hudson Yards and on Park Avenue, taking a significant financial hit.
this comes off as if Meta is going completely remote and sh*t when the fact is they're trying to trim their budget.
+12   

 2 months ago '18        #5
DUCEDUCE  topics gone triple plat - Number 1 spot x2
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Companies are figuring out how cheap it is to stay remote.
+39   

 2 months ago '07        #6
Daville502 
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So in one hand people are saving time ,money ,fuel and other expenses by being able to work at home and in hand number two it's destroying the downtowns of cities.

It seems whenever anything benefits people money wise it is a inconvenience to those who want/need your money.
+39   

 2 months ago '17        #7
CamburyBXGreat 
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People think this is a good thing until they are paying Africans and Asians significantly less to do the job Americans don't want to go into offices to do.


The globalist agenda is in its final stages.

Yall took that money and now they know they can buy you.
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 2 months ago '06        #8
bigkilla  topics gone triple plat - Number 1 spot x2
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 Daville502 said
So in one hand people are saving time ,money ,fuel and other expenses by being able to work at home and in hand number two it's destroying the downtowns of cities.

It seems whenever anything benefits people money wise it is a inconvenience to those who want/need your money.
sh*t isn't a difficult solution. Expand these downtown areas and spread everything out better. Lower the rents/overhead. Add more residential apartments.

There's tons of solutions to this but they don't want that because it'll loosen their stranglehold on the market. sh*t the article even touched on how converting to residential would be costly for them.

So clearly this is just about profits for the real estate companies. Instead of taking an L and making their bread a new way they're trying to not change and force everyone back to offices.

You see it all the time in the city where you have landlords who'd rather leave a storefront empty while asking for an insane amount of money for rent rather than lowering the rent to get someone in there. On one hand it's their property and they have the right to do what they want with it. On the other hand don't force me and/or others to offices because you demand your rent you set high to be paid.
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 2 months ago '17        #9
Ifeellikekobe  topics gone triple plat - Number 1 spot x8
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 CheebaHawk21 said
Amen, and I hope it fu*kin stays this way. Ive been working from home for about 2.5 years now since the pandemic started. Not sure if I'll ever be able to sit in work traffic or work inside an office again.
Its less people on the road and clowns are still crashing into semi-trucks...causing half a day traffic jams. Nah im not going to that office again.
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 2 months ago '22        #10
ReedAboutME 
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must be nice


I still got to travel and go into the office.
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 2 months ago '18        #11
BrooklynDamien  topics gone triple plat - Number 1 spot x2
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Running water, lights, space. Grow food there. They could even farm fish, have bee hives. Jobs in it, food in it.
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 2 months ago '21        #12
Keithf87 
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They are just ringing the alarm before they begin to rezone for condos, then tax the sh*t out of em.
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 2 months ago '16        #13
Proveone  topics gone triple plat - Number 1 spot x4
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 Daville502 said
So in one hand people are saving time ,money ,fuel and other expenses by being able to work at home and in hand number two it's destroying the downtowns of cities.

It seems whenever anything benefits people money wise it is a inconvenience to those who want/need your money.
There's an old adage that can be applied to every situation. "There's no free rides" EVERYTHING cost, from EV's and their perceived environmental benefits to remote work. The article mentions the solution jn the first few paragraphs but fails to explore the reason why it's not being adopted. Commercial real estate is a cash cow and is way more profitable than residential real estate. So the owners of these buildings have very little interest in converting these buildings. Capitalism dictates that they hold out to the bitter end on this. Sprawl is not the answer downtowns are still the future, the first company to figure out how to capitalize on this moment will win. Essentially s all the holders of these commercial a*sets are fu*ked and are going to go into bankruptcy where these a*sets can be bought on the cheap and renovated for commercial use. IF actually retrofitting these is actually feasible.


Edit:
Just talked to m by buddy who does plumbing installs on commercial high rises. His response to how difficult it would be:
Not too difficult. It already has sewer and vent stacks installed for this specific reason.
Usually salesforce tower type high-rises they build specifically to be able to be converted per floor for restaurants things like that


Last edited by Proveone; 12-06-2022 at 12:25 PM..
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 2 months ago '18        #14
Proffesor X  topics gone triple plat - Number 1 spot x4
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 ReedAboutME said
must be nice


I still got to travel and go into the office.
My job decommissioned our office, never going back ...how do I know for sure..........these were 2 brand new buildings built less then 5 years ago........they basically sold both of em .....

Now I'm Overemployed and caking up as much as I can before I crash out on the second gig


Last edited by Proffesor X; 12-06-2022 at 04:22 PM..
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 2 months ago '06        #15
bigkilla  topics gone triple plat - Number 1 spot x2
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 Proffesor X said
My job decommissioned our office, never going back ...how do I know for sure..........these were 2 brand new buildings built less then 5 years ago........they basically sold both of em .....

Now I'm Overemployed and caking up as much as I can before I crash out on the second gig
How’s that overemployed going for you?

I’ve been thinking about it but worried some sh*t might happen in a background check like they’ll find out I’m still with the company and etc..
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 2 months ago '22        #16
Yousabitchtoo 
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 Daville502 said
So in one hand people are saving time ,money ,fuel and other expenses by being able to work at home and in hand number two it's destroying the downtowns of cities.

It seems whenever anything benefits people money wise it is a inconvenience to those who want/need your money.
Downtown shops are typically owned by small business owners so it does hurt the community
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 2 months ago '05        #17
DatKidDex 
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Ill never work at a on location job again lol unless its dispensary grower budtender work
+3   

 2 months ago '17        #18
HH080 
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 CamburyBXGreat said
People think this is a good thing until they are paying Africans and Asians significantly less to do the job Americans don't want to go into offices to do.


The globalist agenda is in its final stages.

Yall took that money and now they know they can buy you.
...isnt that how jobs work?

 2 months ago '05        #19
Micheal C. Will  topics gone triple plat - Number 1 spot x3
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I'm still going into the office



My longest telework was back when it first started in 2020 for about 3 months.
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 2 months ago '17        #20
WHATEVERMAN 
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Smart cities would see this as an obvious opportunity for affordable rentals (businesses would thrive if people had to be there cause they live there), but unfortunately most cities only answer to the billionaire class. Oh well.
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 2 months ago '05        #21
carden2 
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I hope they become housing. I like the idea of tons of housing in downtowns and cities would become so much more walkable. People would live among the businesses bring back some community feel in cities that lost some identity due to commuters flooding downtown then leaving after work and shopping near their suburban house. Plus cities with sprawl are the fu*ken worst
+7   

 2 months ago '18        #22
Sick Flair 
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Turn them offices into luxury apartments. People need housing, buildings need people...
+6   

 2 months ago '19        #23
zzxxccvvbb 
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Most office jobs don't pay enough to live near the office without being cash poor
+15   

 2 months ago '04        #24
refuze  topics gone triple plat - Number 1 spot x8
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Less people out during the day means less money in circulation within the economy

I encourage people to spend money supporting small businesses and restaurants if you can

As much as we enjoy remote work, we still need to give back. Other people who don't have desk jobs like us need to make a living too.
+4   

 2 months ago '20        #25
Born Bad 
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 CamburyBXGreat said
People think this is a good thing until they are paying Africans and Asians significantly less to do the job Americans don't want to go into offices to do.


The globalist agenda is in its final stages.

Yall took that money and now they know they can buy you.




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