I'm not seeing a way to avoid this. How the 'urban doom loop' could pose the next economic threat With more people working from home, companies from Milwaukee to Memphis are rethinking their leases or pulling out of them altogether. That drives vacancy rates up and makes it harder for landlords to attract new tenants or sell buildings for a healthy price. Then property owners might struggle to pay off their mortgages or clear other debt. Business districts would dry up, stifling tax revenue from commercial properties or employee wages. Shoppers and tourists would have fewer reasons to venture downtown to eat or shop, choking off spending and forcing layoffs at restaurants and retail stores. "Once those offices are empty, there are few alternatives and not a lot of life after hours," said Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia University's Graduate School of Business who is one of the authors of a paper that coined the "urban doom loop" phrase. Midsize cities "have a much bigger chasm to cross than what New York City has to go through. The situation is worse in those places with so little else in place." He added, "It is a train wreck in slow motion." Maybe condemn the office buildings, tear them down, and put up suburbs instead?
I read something similar is the past few days; I don't remember exactly where. One of the examples the piece used was San Francisco. Downtown SF used to be an amazing place, HQs from some of the world's most successful businesses, a vibrant art scene, world class restaurants and watering holes. The "work at home" frenzy brought on be the pandemic gutting downtown SF, turning it into a skid row; crime, drugs, violence, human filthy abounded. Now, SF leaders are trying to lure people and businesses back, but so far success has been minimal at best.
If they are trying to lure people back they are doing everything but doing something about "crime, drugs, violence, human filthy abounded."
I think the issue of commercial buildings being in trouble, and commercial buildings going out of business is much larger than just a greater percentage of the workforce working from home. This is a trend that had started well before the coronavirus pandemic. More residential buildings keep being built, but very few commercial buildings, and in many areas there are many commercial buildings sitting empty or even being bulldozed away. More people, fewer businesses. People are getting poorer. Another part of the issue is,I think, after the coronavirus pandemic, people got much more germaphobic and averse to uncleanliness and being in gritty shared public areas. That combined with all the homelessness running rampant in many big major cities has caused many people to not want to be in big cities. Typically most of the big office buildings have been located in a major city's downtown area. It's not surprise that office buildings might not be doing so well in Los Angeles, San Francisco, and Seattle, for example. It's actually rather expensive to convert office buildings into residential units. One issue is that residential units in large buildings are often smaller than offices, because individual people who would live there cannot afford to pay office priced rents. For many owners, a conversion might not be seen as worth it. Office buildings are more expensive to build and bring in more revenue than residential apartments. Converting to apartments would probably be seen by the owner as a waste. Perhaps in some big city areas like New York, office buildings could be transformed into luxury condos. But that would probably not work for most places. No surprise, there are not many big office buildings being constructed in the U.S. these days. Some might view that as a sign of economic decline.
I realize it's impractical to convert office buildings to residential, unless you are going to turn them into open floor plan homeless camps. That's why I was suggesting to just bulldoze him.
It's a huge waste of money and expensive investment to just bulldoze those buildings. Maybe you don't realize how much it costs to build a 4-level office building. An average mid-height office building costs about $15 million to build.
I think there are a lot of workers who would rather quit and work for someone else than go back into the city to do the same work in an office they can do from home. I think a lot of them see trying to force them back to the office as a hostile act. I think companies know this too, and they are reluctant to try to force their employees back for fear of losing them.
I respect you as an individual member of this forum and your thoughts, but think you do not really understand the full situation, or the perspective of the companies that own these buildings. If you owned one of these buildings, you would not be so quick to want to either convert it or bulldoze it. Doing either would be an admission that you would lose out on a big part of the future profits you were expecting. If you owned such a building, you would be inclined to want to wait it out and hope that the situation eventually improves, so you could get those big profits, to justify your big past initial investment in the building. Some of the buildings might not be completely empty.
Well I'm neither an owner or investor in big office buildings, so I don't pretend I'm an expert on the economics of them. I'm simply coming from the position that as companies let their leases expire in these buildings, they become depreciating assets. I'm not sure there is going to be a turn around for many because I think the work at home thing is permanent. There may be a need for more office space a decade from now, but if you calculate that you are going to continue to lose money on a property for the foreseeable future, at some point you may want to cut your loses, and if the city makes you an offer to dump the building, as opposed to dealing with the costs for years on end, I can see many owners jumping at it.
I'm pointing out that if a company did either of the two options you suggest, it would be writing off a huge amount of their assets. In a way, it's a similar type of reason to why after the 2007 Housing Crash and all the foreclosures, many banks did not want to sell the homes for less than the original loan had been for, even though the market value of the homes were now less than what the loans were, and even though these banks really did not want to be in the business of owning or managing homes and knew that if they were not sold soon the homes would quickly begin to deteriorate from neglect. The buildings are much more (potentially) valuable as office buildings, and the companies are holding onto hope that the market conditions will change back, so they don't have to destroy their valuable asset or investment.
OK. Maybe things will turn around and the economy and WAH will all return to pre-Covid times, but that's not the way I would bet.
Maybe they should try charging rent to the rats. Rats! Because that is who is telling their office workers to come back to the office now that the pandemic is over. No, really! All the bosses are telling their workers to return to the office now. Even the CEOs of major companies. Crisis averted!
"Converting office buildings into apartments isn't as easy as you might think" letter to the editor: "While I think converting underused or vacant office buildings into housing is a pretty good idea, I think most proponents are clueless about how much it costs to do this. I worked in an office that had a floor space of about 10,000 square feet. There were a set of bathrooms on either end. Each cube had one 15-amp electrical outlet, maybe two. All that plumbing and electrical work to make the space suitable for housing has to be run. Then there's the loading considerations of building soundproof walls, adding water heaters and more." Another of the letters to the editor suggested that, given the going rents and prices of current office buildings, if they were divided up and converting into housing units the math suggests that those units would not be affordable. They point to the example of the Crosby apartments in Los Angeles' Koreatown, which has 21 units available throughout the 12 floors of the two buildings, where a 715-square-foot studio with one bathroom rents for $2,370. "Letters to the Editor: Converting office buildings into apartments isn't as easy as you might think", Los Angeles Times, 2023
