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Work from home and the office real estate apocalypse

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Re: Work from home and the office real estate apocalypse

#31

Post by judge2020 »

superfrank wrote: post #12

I'm curious to see how this plays out in the long term since data they're using is from 2020. In late 2020 I remember reading tons of articles about how people were fleeing the city causing apartment rental prices to plummet. Now, two years later, most of my friends who rent are paying as much as, if not more than they were paying pre-covid and the apartment buildings I can see into look as full as they ever were (an…

Here’s your data; Covid definitely slowed rent growth during 2020 but throughout 2021 and 22 it looks like it’s back in full-swing, with >15% YOY in 2021 and similar growth predicted for 2022.

https://www.apartmentlist.com/research/national-rent-data

Re: Work from home and the office real estate apocalypse

#33

Post by swader999 »

nopenopenopeno wrote: post #15
chii wrote: post #13

Earlier quoted context omitted.

there's more to it though. Real estate doesn't "expire" like grain. It can be repurposed, but it would require some capital investment. As an analogy, the grains could be fermented and turned into spirits. And as an addendum, the value lost in the commercial real estate could be potentially considered as transferred - let's say a business either gets a cheaper rent, or stops renting offices (after this is why these c…

If NYC office space in a high rise, it cannot just be repurposed for something else.

Yeah imagine replumbing for residential. I guess you could gut it to the shell. Almost starting over at that point.

Re: Work from home and the office real estate apocalypse

#34

Post by drieddust »

cortesoft wrote: post #8
wmeredith wrote: post #2

From the abstract, “We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 32% decline in office values in 2020 and 28% in the longer-run, the latter representing a $500 billion value destruction.” Is that value “destroyed”? Is it not unlocked to flow elsewhere? I’m genuinely curious about the dynamics of this.

Whether value was 'destroyed' or not depends on how you look at it. $500 billion dollars worth of assets were lost by the owners of the real estate; that value is gone, and it didn't go to someone else. It just vanished. The value didn't disappear because it transferred to someone else, it went away because the asset itself become less desirable and valuable to other people. You can imagine it being like if a farmer…

That also depends upon the fact that how much of that $500 billion was the upfront investment made and how much was actually due to pure speculative pricing.

Isn't it more like wheat produced at a cost of $100 was selling at $500. But it can only sell at $150.

Re: Work from home and the office real estate apocalypse

#35

Post by tamrix »

JohnJamesRambo wrote: post #4
cortesoft wrote: post #3

It will be interesting to see what happens to our cities if WFH stays/becomes the norm. So much of modern city design is built around the office, what happens when that isn't the case?

Sweet ass apartments in office buildings I hope.

Not a chance. This is completely unrealistic without major, major reconstruction. It's cheaper to deconstruct and build a new building in its place.

Imagine the amount of plumbing you would have to redo for the toilets. There all sorts of codes for apartments, there must be so many windows, you need natural light in bedrooms etc

Re: Work from home and the office real estate apocalypse

#36

Post by quickthrower2 »

cortesoft wrote: post #11
JohnJamesRambo wrote: post #4

Earlier quoted context omitted.

Sweet ass apartments in office buildings I hope.

Will people still want to live in cities as much if you can work from home?

The main benefits are human connections and walkability. There are lots of others from decent restaurants and bars, multiculturalism, decent shops, concerts, theatre, street events, quiet (yes! … see the good HN discussions about leafblowers, lawnmowers and suburban noise), carbon footprint, …

Re: Work from home and the office real estate apocalypse

#37

Post by barry-cotter »

rfrey wrote: post #20
cortesoft wrote: post #8

Earlier quoted context omitted.

Whether value was 'destroyed' or not depends on how you look at it. $500 billion dollars worth of assets were lost by the owners of the real estate; that value is gone, and it didn't go to someone else. It just vanished. The value didn't disappear because it transferred to someone else, it went away because the asset itself become less desirable and valuable to other people. You can imagine it being like if a farmer…

While I agree value has been destroyed, rents should fall as a result of lower property values, and tenant companies will have more money to deploy to their businesses as a result. A net negative to the economy to be sure, but (literal) rent-seekers aren't the only ones in the equation.

No value has been destroyed because the land and buildings are still there. There’s less demand for them than before so they can charge lower rents and the property will sell for less. But that’s because of better other options. The production possibility frontier has expanded, not contracted.

Re: Work from home and the office real estate apocalypse

#38

Post by xkgt »

jmtulloss wrote: post #9
wmeredith wrote: post #2

From the abstract, “We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 32% decline in office values in 2020 and 28% in the longer-run, the latter representing a $500 billion value destruction.” Is that value “destroyed”? Is it not unlocked to flow elsewhere? I’m genuinely curious about the dynamics of this.

They are exaggerating it by not including the increases in value elsewhere, but there is "value" destroyed. The flow to other places is not as high as what was lost. I think this is due to the perceived value of proximity not keeping up with technology. The "real" value of proximity fell as technology improved, and that was exposed during the pandemic. It's more of a correction than outright destruction, but it's not…

It will be interesting to observe what this means for growth of cities. In the last 100 years, city sizes increased while staying within Marchetti's travel time budget [1] (1 hour for round trip) thanks to higher speeds available through motorized transport. Now that technology is redefining proximity once again, I wonder what factors will continue to encourage/discourage people to live in dense cities.

1 - http://www.cesaremarchetti.org/archive/scan/MARCHETTI-052.pd...

Re: Work from home and the office real estate apocalypse

#39

Post by vba616 »

cortesoft wrote: post #8
wmeredith wrote: post #2

From the abstract, “We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 32% decline in office values in 2020 and 28% in the longer-run, the latter representing a $500 billion value destruction.” Is that value “destroyed”? Is it not unlocked to flow elsewhere? I’m genuinely curious about the dynamics of this.

Whether value was 'destroyed' or not depends on how you look at it. $500 billion dollars worth of assets were lost by the owners of the real estate; that value is gone, and it didn't go to someone else. It just vanished. The value didn't disappear because it transferred to someone else, it went away because the asset itself become less desirable and valuable to other people. You can imagine it being like if a farmer…

>You can imagine it being like if a farmer had a bunch of grain stored in a silo and it somehow went bad.

It's fundamentally different, practically the opposite.

Paper losses are like a farmer realizing that the grain in his silo is bad. Knowing this when you were oblivious before is a good thing, whereas the grain going bad is obviously not.

Once you start regarding bad news as a loss, very bad stuff happens. In some contexts, we'd all agree. "Shooting the messenger" is an age-old cliche for counterproductive use of power, right?

Just saying that $X billion dollars were "lost" by market price fluctuation is dangerous, because it suggests it can be weighed numerically against real things and real peoples' lives lost.

If you were a CEO or a politician or someone powerful, would you justify destroying one warehouse or home or hurting one person, in order to avoid, say, a trillion dollar "loss" of paper value in some assets?

I mean, don't you think people do this, directly or indirectly, and it's wrong?

Stock market declines are called "corrections" for a reason.

>The money spent on that commercial real estate is gone. Those big fancy buildings will have been wasted resources and effort.

Maybe, but nobody can say for certain what the world will look like in 5, 10, 20, 50 years anyhow.

Re: Work from home and the office real estate apocalypse

#40

Post by MoreSoap »

cortesoft wrote: post #8
wmeredith wrote: post #2

From the abstract, “We revalue the stock of New York City commercial office buildings taking into account pandemic-induced cash flow and discount rate effects. We find a 32% decline in office values in 2020 and 28% in the longer-run, the latter representing a $500 billion value destruction.” Is that value “destroyed”? Is it not unlocked to flow elsewhere? I’m genuinely curious about the dynamics of this.

Whether value was 'destroyed' or not depends on how you look at it. $500 billion dollars worth of assets were lost by the owners of the real estate; that value is gone, and it didn't go to someone else. It just vanished. The value didn't disappear because it transferred to someone else, it went away because the asset itself become less desirable and valuable to other people. You can imagine it being like if a farmer…

Lower rents or building values means businesses leasing/purchasing those buildings have more money to invest elsewhere. It could be argued that the capital will be used to drive a real ROI… something that rent does not provide.
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