Commercial real estate market decline and central city business districts in the face of the pandemic
The Financial Times reports ("Destruction of value in US real estate revealed") that properties severely affected by a decline in business as a result of the pandemic are seeing a minimum 25% reduction in value.
Disney has laid off 28,000 employees at Disneyland in California and Disney World in Florida.
The Washington Post ("The pandemic has devastated downtown D.C. Some fear the damage is permanent") and the New York Times ("We're at War: New York City Faces a Financial Abyss") have articles about the difficulties faced by central business districts, how many of the service businesses located there will fail before people are able to return--presuming that a vaccine will make it possible for people to go back to the office in large numbers, and the economic fallout that this will have on local governments, facing a drop off in property, sales, and income tax revenues.
Relatedly, most transit systems are in dire financial straits, because of the loss of ridership ("Public Transit Officials Fear Virus Could Send Systems Into Death Spiral," New York Times).
Labels: commercial district revitalization planning, commercial real estate market, public finance and spending, public health, taxation, transit funding, urban revitalization
posted by Richard Layman @ 11:52 AM&Permanent Link
6 Comments:
It's going to be bad.
Also what are the chances of WeWork going belly up?
They are leasing about 10% of the office space in DC and from what I've seen no revenue going in right now. They also overpaid for that space driving up the price for everyone else.
That said, I'm looking at buying the Growth Machine (JBGS).
DC is in better place with a blend of traffic fine/income tax/residental RE/CRE tax streams (and reduced pension issue thanks to the control board) but I don't see an easy way back.
DC is better off, especially if the Republicans lose bigly. But it won't be easy as you say. It'll be rough.
Fwiw, I think JBG is a decent firm. And they are focusing on where they add value. Plus, Amazon...
We Work was always gonna be a venture capital orgasm. Do you remember the fraud of ZZZBest? There were never that many restoration projects to justify the revenue they claimed to be making.
With we work, there is demand for such fractional use spaces. But it's hardly unlimited but it is scalable and expandable providing you have normal expectations about returns.
How individual bike rental firms in different cities came together and "united" under a common brand, big commercial property owners should've done the same thing. Sharing a we work brand, but running the space themselves.
To be clear, I am not sure it will be easy.
I could easily picture a scenario where we don't build any new office building for 10-15 years, major cities start to be depopulated, etc.
(And without a central business district there is no need for transit. Why throw money at it?)
Throw in massive subsidies for electric cars (see CA) and everyone will be back to working in edge cities at best.
That's one scenario. Another is that this is just a giant speed bump and cities will be back to normal in 2-3 years.
Micro update: 2 units continue to be on sale (since July). Clearly the worst condo market in DC since 2012. I know two more owners want to sell but are too afraid.
shows what leaving out a comma can do...
I meant to write:
But it won't be easy[,] as you say.
I don't think it will be easy.
Yes, if you can't congregate there's no point to a city.
I expect we'll come up with a vaccine.
But that's not based on any special knowledge on infectious disease.
If that doesn't happen, cities could be toast. Including transit.
And even with a vaccine, it will take some years for cities to begin to recover.
I don't think there will be the big push to telework like people believe, but then I am a big proponent of agglomeration economies.
We'll see.
WRT the condo market, I wonder if that is across the board, or particular to the core?
I can see people not wanting to be in multiunits, especially elevator-dependent living, at least for awhile.
RE: condo market. Hard to say. I'd say the bigger push is people want space. Thinking of listing mine as 1BR, 2 office, 1 bath. Our building isn't elevator dependent (easy to walk up a flight of stairs).
from Bloomberg:
https://www.bloomberg.com/news/articles/2020-10-01/new-york-san-francisco-rents-plunge-in-shift-to-cheaper-cities?srnd=premium&sref=4NgeXq8Q
New York, San Francisco Rents Plunge in Work-at-Home Shift
Biggest rent increases 3q 2020:
Riverside/San Bernardino, CA 4.4%
Sacramento, CA 3.7
Virginia Beach, VA 3.5
Greensboro, NC 3.1
Memphis 3.1
Phoenix 3.0
Cincinnati 2.4
Columbus 2.4
Detroit 2.4
Indianapolis
That was followed by Sacramento, California; Virginia Beach, Virginia; Greensboro, North Carolina; and Memphis, Tennessee. By contrast, San Francisco rents fell 11% and New York’s dropped 8.5%.
For the analysis, RealPage looked at effective asking rents, which factored in concessions from landlords.
so you said, you're thinking of listing. What type of property would you want instead?
(Years ago I was gonna tell you about a house on my old block. Detached bungalow. But you had already committed. And yes, we didn't live in a "cool" area with lots of nightlife. Although such wasn't too far away.)
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