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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

#151

Post by dhzhzjsbevs »

qq66 wrote: post #75
dhzhzjsbevs wrote: post #42

Earlier quoted context omitted.

That's not how market devaluation works. The "money" (paper money value) definitely was disappeared. It doesn't flow to someone else. Markets don't work like that. If I buy something for $100, the market value increases to $150 and then drops to $50, I've still lost $100 from the peak on paper. It didn't go to someone else.

The value of the building going down on paper is only significant when you denominate it in some currency, like dollars, or hours of labor. When the value of a thing goes from $1000 to $100, the people who lose are the holders of that thing, the people who win are the people looking to buy that thing, they can now do so with 10 hours of their labor rather than 100.

They don't gain that value. They gain a savings yes, but they can't turn around and sell that thing for 1000 to make a profit.

Re: Work from home and the office real estate apocalypse

#152

Post by alexalx666 »

achow wrote: post #122
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…

Agree. The place I work had diverse companies in a 'tech park' - Amazon, Google, and many others inside a gated office space, the total population of which could easily surpass 10K. We used to have a common and very vibrant food court, even though each company used to give free cafeteria food, employees used to walk to the common food court for variety - of both people and food. Also, since there was so much traffic…

It's kind of shocking to read the phrase "vibrant food court". If this was the bar before COVID it can only get better.

Re: Work from home and the office real estate apocalypse

#153

Post by seadan83 »

saiya-jin wrote: post #115
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…

Must be some US thing with its more mobile and dynamic population, but I dont see any real change pre-covid vs post-covid in the city centre we live in (Geneva, Switzerland) or any other bigger cities we saw in past half year. Few moved out, few moved in, maybe rents adjusted a bit but I didnt check that. Same shops, bars restaurants opened, same entertainment going on.

Yes, it is an american thing of how cities were built and social factors. Cities here tend to have commercial districts where nobody lives and residential districts or suburbs and you have to drive between the two.

The more European model where first floor is commercial and residential in top, it's a different story to have everyone working from home, no overnight ghost town in commercial districts.

Re: Work from home and the office real estate apocalypse

#154

Post by seadan83 »

barry-cotter wrote: post #37
rfrey wrote: post #20

Earlier quoted context omitted.

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.

As far as intrinsic value, you are correct, the buildings are just as functional as ever. But when it comes to extrinsic value, the extra value we place on something because it is desired, that is where value was lost.

Re: Work from home and the office real estate apocalypse

#155

Post by seydor »

IAmGraydon wrote: post #23

I’m a believer in reversion to the mean, and I think that’s what we will see with the office market and work from home. The technology to work from home existed before the pandemic. Why didn’t it take off before the pandemic if it works so well? We didn’t suddenly discover a new technology here. The use of that technology was precipitated by a transient force, and when that force is removed completely, things will re…

I think the opposite. Currently there is very little remote work ecosystem, but there is a huge office ecosystem. With remote being now a very real option for so many people, businesses that facilitate remote work will spring up (helping people relocate, coworking, help with foreign workers, payments etc). Traveling hasn't even resumed, and as the pandemic is removed and the war ends, people will have more options to reconsinder where they want to live.

Remote is also naturally self-reinforcing because partial-remote degrades the value of offices.

Re: Work from home and the office real estate apocalypse

#156

Post by seadan83 »

sbrother wrote: post #53
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.

Living in a resort town in Utah, I’m fairly sure a large portion of that value was transferred to Mountain West residential real estate

Pink cars are all the rage and sell for +20% One day pink is viewed as bad and now blue is the color to have. So now blue cars sell for +20% and pink sell for +0% The extrinsic value is arguably transferred, but if you are holding a pink car, you're down in value that was just lost due to a loss in extrinsic value. A"transfer" is a bit tortured imo because the change in value was not 1:1. Some WFH areas gained a lot more comparatively than other locations lost, and vice versa

Re: Work from home and the office real estate apocalypse

#157

Post by 88840-8855 »

betwixthewires wrote: post #123
88840-8855 wrote: post #102

Earlier quoted context omitted.

I disagree. Living in a city is way better than living on the countryside. - access to a large airport to go on regular holidays easily - better health care coverage, more doctors, more specialists - cultural access - more diversity and more colorful services and products - better public transportation

I have access to a small airport that's an hour flight to a large one. The logistics of going somewhere for leisure are only marginally more difficult for me, and even easier since I don't have to navigate a small city within a city with a million people in it and traffic to get there and all that. And for the most part I have plenty of leisure around me, I don't have to fly anywhere to see wide open spaces for examp…

I am talking about niche hobbie stores, d&d clubs, anime conventions, gay clubs (that are enjoyable as a hetero, too), authentic Vietnamese restaurants, Guangdong, Sezhuan, Taiwanese restaurants, 2nd hand stores, unique cafes, small specialized book stores.

And yes, also "brown" people. But also Japanese, Korean, Russian, Indian and Brazilian people.

Re: Work from home and the office real estate apocalypse

#158

Post by bratbag »

occamrazor wrote: post #149
tarsinge wrote: post #138

Earlier quoted context omitted.

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.

Residential neighborhoods don’t have the same peak density. In central business districts every street has shops, in residential ones it wouldn’t be sustainable.

The reduced density is still enough to support mini-hubs.

In Europe they are common and have been flourishing again even as cities flounder.

Pre pandemic my local town center in the London commuter belt was in a death spiral. Now its expanding.

Re: Work from home and the office real estate apocalypse

#159

Post by seadan83 »

benjaminwootton wrote: post #51
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.

So far, I suspect every dollar lost on commercial real estate has been gained on residential. In many cases, the uplift in residential value is directly attributable to WFH (e.g. where a home office or more rural property becomes more desirable.)

How does thus work? I still live in the same place as before. If anything, less people want to live here because proximity close to work is less important. Some places gained value for sure, I think Bend Oregon is a very notable example. I don't think it is 1:1 as not everyone up and left where their office became a ghost town.

Re: Work from home and the office real estate apocalypse

#160

Post by seadan83 »

richardfey wrote: post #133
nomilk wrote: post #104

Earlier quoted context omitted.

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.

Generally the tobacco industry does not pay those costs. Hence, relative to the tobacco industry, it would be a vaporization of value
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