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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

#131

Post by Beldin »

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…

> [the value] went away because the asset itself become less desirable and valuable to other people.

That view on "value" is inherently fickly. In case they never sold their buildings, you could also argue that no value had been lost. They still have the building after all. Their speculation has a different calculation behind it now, but that's normal - speculation RoI is not guaranteed.

Re: Work from home and the office real estate apocalypse

#132

Post by richardfey »

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.

I was about to comment on the same passage. The value has moved into housing real estate that can serve as a remote working place *and* into the less quantifiable quality of life improvement. This is the same bias used in GDP calculation vs happiness, it's a huge topic, look it up for more information.

Re: Work from home and the office real estate apocalypse

#133

Post by richardfey »

nomilk wrote: post #104
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.

And if everyone quit smoking it would cause the "destruction" of billions of value in the tobacco industry.

Exactly. Until someone starts to calculate the compound healthcare and welfare costs.

Re: Work from home and the office real estate apocalypse

#134

Post by 2-718-281-828 »

asimpleusecase wrote: post #85

This has an impact not just in rents for office buildings but the entire ecosystem of support businesses that sell to workers who come into city centre to work. One example. Small organic food shop, that sold mostly to office workers and has seen a 70% drop in foot traffic. The same thing hits bars, cafes, restaurants, theatres and other venues. Those very things that make living near or in a city interesting for man…

Half agree.

We need to rethink the concept of city. If we don't do that we'll end up with ghettos. But if we do and implement the transformation then we'll develop something more desirable than conglomerate of various businesses. A center of a town can very well be vibrant and inspiring without most businesses if the resulting free real estate is repurposed by galleries, theaters, restaurants, parks etc.

But we won't in the near term. This will just start to happen after all other options have crumbled and one option will still be to just hold empty housing and real estate for the purpose of mere speculation. I'm pessimistic.

Re: Work from home and the office real estate apocalypse

#135

Post by lmm »

betwixthewires wrote: post #99
yakak wrote: post #89

Earlier quoted context omitted.

I know a few areas that were gentrified in earlier times and ended up with things more suited for residents of a certain class than commuters. I also know of other downtown locations that became terrible to live in because a grocery store was uneconomical use of space. I'd generally say that if they can fill it to a good density it can have a good local market compared to suburbs with poor density.

But how do you fill it to a good density when the cost to live there is higher and there's no need to live there to earn a living anymore?

The density itself makes it worth paying a premium to live there. Just being able to not own a car is a huge saving that can go straight into rent, and even if it costs more the quality of life benefits are worth it.

And hell, worst case land prices and rents in the city center come down a bit, that's not really a problem.

Re: Work from home and the office real estate apocalypse

#136

Post by WastingMyTime89 »

betwixthewires wrote: post #127
WastingMyTime89 wrote: post #120

Earlier quoted context omitted.

> But you missed my point. All those perks of living in a city are great, if you need to be there to earn what you earn. without that, the high cost of living simply isn't justified. I am not missing anything. I just deeply disagree. City life is enjoyable in and of itself. I don’t live there because I have to for my work. I live there because I find it inherently better than living somewhere else. If I was living in…

That's a part of it too, moving to smaller cities, but that's still a massive economic reshuffling. I think you're grossly overestimating the number of people that live in cities for reasons other than economic opportunity. That is the entire value proposition of a city, that was the driver that led to urbanization in most countries as they developed. You might be willing to pay 3x as much in rent for the same pay be…

> That is the entire value proposition of a city … 3x as much in rent for the same pay because you like the local chicken place

We are going in circle. Economic opportunities are clearly not the entire value proposition of a city. It’s a very convenient way of living. It’s not about a chicken place. It’s about walking your children to school, being able to go to conferences, to see plays or attend a concert. It’s also just nice to not need a car. It’s very advantageous to just live close to others.

I don’t know where you get your 3x from by the way. An average city rent here is only 20% to 30% more expensive than living in the countryside. We are not talking about San Francisco.

Re: Work from home and the office real estate apocalypse

#137

Post by lmm »

betwixthewires wrote: post #125
mushbino wrote: post #113

Earlier quoted context omitted.

People, culture, and amenities attract people. Maybe lowering prices would help too. Artists, galleries, restaurants, theaters are all attracted by dense areas with prices that are attractive. Cities can also step up to help with incentives instead of completely leaving it up to the free market to sort out.

But those people and culture and amenities are just other people , and when the core economic engine of the city is gone, those people leave too. Imagine you're a Jamaican halal chicken shop owner and your core business is professional office workers walking by on the way home from work and stopping in for a bite. When that office worker is no longer there because he can make the same salary and cut his expenses in h…

The economy is supposed to be about enhancing other people's lives, not vice versa. Living in a city where you can walk down the road to get a chicken sandwich is a big win over living in a suburb where you have to drive everywhere. That's still true if you're working remotely.

Re: Work from home and the office real estate apocalypse

#138

Post by tarsinge »

asimpleusecase wrote: post #85

This has an impact not just in rents for office buildings but the entire ecosystem of support businesses that sell to workers who come into city centre to work. One example. Small organic food shop, that sold mostly to office workers and has seen a 70% drop in foot traffic. The same thing hits bars, cafes, restaurants, theatres and other venues. Those very things that make living near or in a city interesting for man…

These vibrant ecosystems flourished where people spent most of their day. It could be a huge win if they finally migrate to residential neighborhoods, where people will now be more present.

Re: Work from home and the office real estate apocalypse

#140

Post by cookiengineer »

Tade0 wrote: post #129
cookiengineer wrote: post #95

Earlier quoted context omitted.

Are factories now built downtown or am I missing something? Do you think that cities of the future rely on cars or on more efficiently scaleable means of transportation - like trains, subways and trams? > Ask yourself how many people are unable to work remotely. Please elaborate. Personally, I don't think there's any elected mayor on the planet that has "moving more factories inside the city" on their agenda. Note th…

> Are factories now built downtown or am I missing something? Plenty of other roles that can't be performed remotely, e.g. plumbers, hairdressers/beauticians, dentists, shoe/clothing store workers, therapists, teachers (technically possible, just not desirable in the last two cases). But that's not even the limiting factor for public transport: the landscape of extracurricular activities for children shifted. Parents…

I think what's missing in your argument is the causality of the problem at hand.

> have a total of 3-4 locations to visit daily

I'd argue that the problem is not roads themselves, the problem is that cities are built around roads and cars. If cities would be organized with being road-free in mind, the problem you're describing wouldn't exist.

A lot of cities in Europe have changed their way of thinking how to design a city these days, and try to evolve the downtown areas so that they're closer together and easier to reach via public transportation and/or by foot. Just some examples that come to mind: Venice, Granada, Amsterdam, Heidelberg, Nuremberg, Rostock (and soon probably Mainz and Stuttgart, as they're actively working on it).

What these cities have in common: They changed their prioritization from multi-lane roads inside the city to a sustainable park&ride model that embraces cheap and regularly available public transportation, and combines that in worst case (when they don't have trams, busses or subways) with something like rentable bikes provided by the city. In best case, you'll have something like Amsterdam or Venice, where everything is not built for cars but for all other modes of transportation, except cars.

And some might argue that those cities have working plumbers, hairdressers, dentists etc, too. They seemingly can still work without having a multi-lane highway blocking the skylight over their houses. Why do you think is that the case?

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