Office Slump Gets Ugly in Houston, San Francisco, Los Angeles, Manhattan, Chicago, Washington DC

This isn’t a blip.

By Wolf Richter for WOLF STREET.

Houston has been for years the toughest major office market for landlords, after a historic office-tower construction boom collided with the Great American Oil Bust that started in 2015 and reached a crazy paroxysm in April 2020, with benchmark crude oil grade WTI collapsing briefly to minus $37 a barrel in the futures market. During 2020, hundreds of oil and gas companies filed for bankruptcy, most of them in Texas. On top of it came the Pandemic’s shift to working from home.

It is becoming increasingly clear, as companies announced their plans, that there is a long-term shift to a hybrid model, with some employees working permanently from home, others working in the office nearly all the time, and many others working from home part of the time, and showing up at the office part of the time, with hot-desking and big lounge-type meeting areas taking over desk farms. And companies can reduce their office footprints.

And now Houston is getting lots of red-hot competition in terms of vacant office space from big expensive office markets, such as San Francisco, Los Angeles, Manhattan, Chicago, Washington DC, and others.

Houston, still the toughest office market.

The available office space rose to 54.8 million square feet (msf), or 31.6% of total inventory in Q1, according to real estate and investment management services provider JLL. Available space includes vacant, sublease, and still occupied office space now being marketed as available for lease. JLL named the causes: “bankruptcies, downsizings, and layoffs.”

The total office vacancy rate rose for the fifth quarter in a row and hit 26.2%. Of the 19 submarkets, 15 experienced occupancy losses during the quarter (chart via JLL):

“Large blocks of sublease space continue to arrive to market,” JLL said. In Q1, sublease availability jumped to 6.4 msf.

When companies are leasing office space that they no longer need due to downsizing, or never needed in the first place and were just leasing for potential future use, they can put the space on the market as a sublease. And because they’re just trying to cover some of their costs and don’t need to make money on the subleases, they can do so at much lower rents than direct leases by landlords. And this is happening massively.

Overall asking rents have started to tick down (red line) to $31 per square foot (psf) per year, but sublease asking rents are 26% lower, at $22.93 psf. Asking rents are the advertised rents. But landlords may work out a more attractive deal with their tenants, including concessions, free rent, and improvement allowances (chart via JLL):

Total market-wide leasing volume in Q1 plunged 66% from the five-year average to 1.3 msf, as “tenants continued to postpone leasing decisions.”

San Francisco, once one of the hottest office markets, suddenly approaches Houston.

Sublease inventory rose by another 200,000 sf to a new historic high in Q1 of 8.9 msf, according to real estate services provider Savills. Last year, San Francisco’s sublease space blew by Houston’s 6.4 msf, though Houston’s office market is over twice the size of San Francisco’s.

The total availability rate rose to 23.6%, from the single digits two years ago (chart via Savills):

“Current conditions will present an unprecedented opportunity for occupiers to secure space in a once incredibly tight leasing environment as owners will soon need to compete with the tsunami of sublease space,” Savills said in its San Francisco Market Report. It’s how a presumed office shortage suddenly turns into a majestic office glut.

Overall asking rents have declined by 13% and Class A asking rents by 15% year-over-year. According to Savills: “With the glut of available space on the market, expect additional decline in coming quarters as landlords shift from a ‘closed market’ phase into a repricing stage once tenants’ appetite for space begins to re-emerge in full and the sublease market becomes real competition.” (Chart via Savills).

Leasing activity has collapsed, with just 0.4 msf leased, down 75% from 1.6 msf in Q1 2020 and down 85% from 2.5 msf in Q1 2019. Of the leases that were signed, over half were lease renewals.

Los Angeles.

Office availability rose to 23.6% in Q1, the highest since 2009, according to Savills’ Los Angeles Market Report. Subleases space soared to 9.0 msf. And ‘“shadow” availability – space which is available but not currently advertised – will be a bigger issue in 2021, especially in trophy buildings,” the report said (chart via Savills).

Leasing activity in Q1 plunged by 49% from a year ago to 2.0 msf. But asking rents “remain stubbornly high” and ticked up to $3.85 per square foot per month (or $46.20 per year)

“As seen in the past few quarters, the current elevated asking rents are misleading as landlords will have to be aggressive in securing tenants in the face of softer market conditions. Concessions such as parking abatement and contraction rights [a right in the lease to reduce the size of the office at a future date] have become prevalent again and are not expected to go away anytime soon,” according to Savills.

Manhattan, the biggie.

In the largest office market in the US, availability soared to 17.2%, “the highest level in at least three decades,” according to Savills, “with both direct and sublease space continuing to flood the market.” Sublease availability jumped 3.4 msf in Q1 to 22 msf. And an additional 7.9 msf of direct space came on the market, including “some notable additions from a few shuttered coworking locations.” (Chart via Savills).

Leasing activity in Q1 plunged by 48% year-over-year and by 13.7% from Q4, to 4.0 msf.

The average asking rent dropped by 9.1% year-over-year to $76.27 psf per year. Not included in asking rents are concessions which, for new long-term Class A leases, “increased substantially;” In addition, average tenant improvement allowance rose by 15.5% to $124.85 psf, and average free rent rose 17.4% to 13.5 months, according to Savills.

Downtown Chicago.

Total availability jumped to 21.6%, exhibiting “no signs of slowing down,” according to Savills’ Chicago report.  In the Central Loop, availability surged to 24.3% (chart via Savills):

Despite Q1 leasing activity solidly stuck in collapse mode, down by 73.5% year-over-year, landlords have not budged much on asking rents. But “many landlords have shown inclination for heavily discounted rents, increased concessions, and significant flexibility for occupiers who are active and ready to make leasing decisions,” the report said (chart via Savills).

Washington D.C., the government is still leasing.

Amid surging sublease space, total availability jumped to 20.4%, “the highest in at least three decades,” as “tenants wait to lease space, lease less space, or return space to market,” according to Savills’s Washington DC report.

Total leasing activity dropped 33% year-over-year to 1.2 msf. Of this activity, near half came from federal and local government agencies.

Overall asking rent ticked down to $55.53 psf per year. But “owners are being aggressive in pricing, concessions and flexibility to attract and retain tenants,” said the report. “New long-term Class A leases receive on average $148.00 psf in tenant improvement allowances and 21 months of free rent, totaling $260.00 psf in value – an increase of just over $50.00 psf since the start of the pandemic – significantly reducing tenant effective rent.” (Chart via Savills).

As Houston has shown, office markets can be in very tough slumps for years, while developers continue to build the latest and greatest office towers. In Houston, despite years of slump, there are still over 3 msf of office space under construction, though that’s down 28% from the 10-year average, according to JLL.

And when that type of long slump occurs, there is a flight to quality, with companies moving to the latest and greatest towers when their old lease terminates, and abandoning older office buildings, whose landlords might ultimately walk away from the mortgage and let the lenders worry about the collateral.

The question isn’t what to do with the latest and greatest office towers, because they will always find tenants. The question is what to do with older office buildings whose tenants move out when the lease allows them to, as part of the flight to quality. It’s those older office towers – or rather their creditors – that are in trouble when the slump drags on.

Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

  120 comments for “Office Slump Gets Ugly in Houston, San Francisco, Los Angeles, Manhattan, Chicago, Washington DC

  1. MonkeyBusiness says:

    Yeah, now that Twitter employees are working from home forever, I wonder who will fill the former Twitter HQ? That building is old, and it’s located in a pretty dodgy area.

    But then again, Uber just opened their new HQ in Mission Bay.

    • Wolf Richter says:

      But Uber dumped a bunch of their other office spaces.

      • MonkeyBusiness says:

        I think some of them were before Covid? Like they never moved to Oakland even when the space was ready. They also tried to sublease some space from their Mission Bay HQ, not sure if they were successful. When they dumped 3000 people, they closed 45 offices, but don’t think they are in major cities. I might be wrong though.

        • Wolf Richter says:

          I think you’re correct from what I remember. But Uber is now trying to sublease up to 300,000 sf of its San Francisco HQ. This is new, came out six weeks ago. But they’re shopping it quietly and I don’t think it has been listed in the Q1 sublease inventory yet.

    • K says:

      Forever? All that I know is that a lot of businesses have tried to become paperless for many years. It just has not worked. Maybe, if everyone is required to have a smart phone and documents are just exchanged digitally, working from home can become the primary option.

      Twitter might be able to handle much of their work online, because they essentially just publish and must regularly review tiny comments of the masses. They probably flag comments with particular words and might have automatic searches for phrases that they view as problematic.

      Other businesses cannot follow a paperless model. People are also less productive and more prone to depression at home, or maybe, that is just me. :-)

      Hence, if the medicines that are reportedly being trialed and researched work out, I foresee that there is going to be a long, painful period when a lot of businesses will have to reverse their decisions to give up so much office space and will have to start leasing it back. That might be in late 2021 or 2022 or even 2023.

      Of course, the economic catastrophe predicted will likely happen during those years and that might interrupt such a move back. That catastrophe was caused by the bankster-owned (misleadingly named) “Federal” Reserve, which created US dollars to bail out the banksters (e.g., gifting them $2 TRILLION to purchase their uncollectible mortgage backed securities) and has kept interest rates ultra low for more than a decade (so banksters’ banks/Wall Street entities can easily profit by charging you 25% per year on your credit cards to lend you money that they borrowed from their “Fed” or gullible bank depositors at 2.5% or less.)

      Mosquitos are parasites that have proboscis that enables them to pierce their victim’s skins and suck their blood, while causing them harm, e.g., by infecting them with malaria. Banksters are parasites that have their “Federal” Reserve to infect the USA’s financial system, protect them from prosecutions and investigations, rob Americans of their savings and pensions’ funds, bail the banksters out if their gambling results in money losing investments, like the MBS, and keep interest rates ultra-law, “charging” the banksters effectively NEGATIVE, annual, interest rates of 2.5% while shadowstats reports inflation has been running at about 9% per year for years.

      Thus, their “Fed” has been effectively abusing the power that the US congresspersons that foolishly created it gave to it by actually gifting interest amounts annually (by charging banksters much less than the real inflation rate) that total many TRILLIONS in present day dollars, since it was created in the early twentieth century. “Coincidentally,” this started during the years when the two, major organized crime organizations started and gained absolute power over the USA. Read Lucky Lucciano, Dutch Shultz, Meyer Lansky, and Mickey Cohen articles and biographies. What would a congressman or judge do for you if you had evidence that he took serious drugs or abused kids or frequented prostitutes?

  2. Shiloh1 says:

    Better to mitigate the effects of Climate Change by working from home and never setting foot in Chicago for my corporate job.

  3. Rcohn says:

    Let’s simplify these numbers

    In Houston, SF and LA one out of four buildings is vacant .

    • Felix_47 says:

      The government could convert it to housing for undocumented new arrivals. I could see it as a fairly cost effective solution. Right now our local Marriott Suites is being used at great expense to the taxpayer.

      • MiTurn says:

        “Right now our local Marriott Suites is being used at great expense to the taxpayer.”

        Migrate illegally to the US for a free, government-paid vacation! Like, forever!

        • SD convention center is housing teenage children of asylum seekers. Cot in an open air auditorium, after hurricanes and violence in Central America I am sure they appreciate the comfort. Many of them have legal families here and will be placed with them but the immigration system was gutted during the previous administration. I am sure a lot of those women will end up cleaning rooms at that Marriott Hotel where they are staying. High pressure low wage jobs. They do it so their kids can get a break in this country. Now the kids who are here legally are being disenfranchised by the school at home program, because these families do not own computers, and no one in the family understands how to use them. In the 40’s there were Japanese immigrants to this country who had been here 20 years without a path to citizenship. They were interned during the war, and their land taken. Greenspan said some years ago that we need more immigration to fill the jobs that a growing economy will create. So what do you want, empty office space and hotels, or immigrants to fill those jobs?

        • SeenThisBefore says:


          “we need more immigration to fill the jobs that a growing economy will create”

          “Jobs without nights, weekends, holidays off. No benefits, no privacy, dormitory housing, either in old suburbs, paid for by other taxpayers who earn too much to be exempt, or on site and most importantly of all, a willingness to work your hands to the bone for low, low wages, unlike those spoiled white children who can only play video games, or uppity minorities with grievances.” Bienvenidos!

        • Russell says:

          Ambrose – Why do we need to bring workers here? We are sending all of the jobs to their countries. If they have families here, they should request sponsors before just showing up. It would greatly ease the process. There was nothing wrong with them waiting on the south side of the border for an invitation.

        • RightNYer says:

          Ambrose, this is nearly all false. Americans have record low workforce participation. Bringing in more people is going to make that worse. It’s that simple. If Americans “won’t do the jobs,” that’s because they pay too less (whether directly or relative to welfare/unemployment).

      • robert says:

        Or they could just confiscate private property and fill it up with illegals/homeless/strangers, all on a guaranteed minimum income.
        If you don’t meet the ‘rich’ definition they may even still let you live there.
        It worked in the Soviet Union. Why have 1 family to a house, wasting resources, when you could have 5 or 10?
        With the Great Reset, everyone will be happy.

        • p coyle says:

          this sounds like college. well, college back when i went. we were, for the most part, happy then. lessons were learned and so on. i don’t see this great reset bs working out even as well as that fiasco.

  4. cas127 says:

    In a way, it is the pre C19 vacancy rates (not unusually 15%+) that fascinate me.

    How have landlords historically defended such high PSF prices when 15%+ of their bldg is unoccupado?

    With that much avl space floating around, you would think a halfway decent tenant negotiator would beat up landlords on price easily.

    “Don’t give me 30% off my PSF? Fine…I’ll take my 10% tenancy and you can deal with a bldg 25% vacant…”

    Don’t tenants do mkt research?

    • Prairies says:

      Market research? The land owners likely have enough mark up on the 85% that is being rented to cover the costs of owning the vacant 15%. They already pay a lump sum of tax and mortgage for the whole pie, then price the pie to be paid for in full by the time 50% of the pie is taken by customers. The rest is profit margin, now is that 100% accurate for every rental. No, but it’s the basic principle for all rental properties pricing structures. When they hit the mark where they lose money, they drop the location.

  5. roddy6667 says:

    I remember how the collapse of the real estate market began in 1988. It was the high vacancy rate in commercial buildings. This was followed by a softening in the very high Greenwich/Stamford residential market. Like a row of dominoes falling, it worked down to blue collar starter homes. It took a decade for home prices to reach the early 1988 level again.

    One thing about being old…I can say “I’ve seen this movie before”.

    • Depth Charge says:

      Did you have speculators buying 2nd and 3rd homes then?

      • roddy6667 says:

        Yes. Liar loans and mortgage fraud were running rampant. I owned three homes at one point, and made a lot of money. Then the house of cards collapsed and I lost it all in a financial trifecta. Foreclosure, bankruptcy, divorce. Live and learn.

        • Frederick says:

          I skipped the foreclosure and bankruptcy and went straight to the divorce and losing it all Or most of it anyway but soon it won’t matter right? We will own nothing and be happy or so they say

    • Swamp Creature says:

      Yep, saw this happen in Denver Colo, when I was there in 1987. After the oil bust in the mid 1980s the commercial downtown are was like a ghost town. High rise buildings with no one in them. I thought a neutron b$mb had gone off.

      • nodecentrepublicansleft says:

        I used to work for the guy who is the current Property Appraiser of Pinellas Co., FL (St. Pete, Clearwater, etc.). It’s the most densely populated county in all of FL.

        He told me about condos that were flipped back in the 80s, prior to the RE crash where people made $50-$100K selling a condo that had not yet been built.

        He told me that as I remarked on a similar situation w/pending construction condos being flipped in 2004-05.

        80s, early 2000s, early 2020s….the cycle continues…

  6. Mark says:

    In LA a lot of those old office buildings are converted into apartments. I live in the former Getty Oil HQ.

    • Wolf Richter says:

      Yes, that’s possible with old office buildings in high-priced cities. I’ve seen them do it successfully in Manhattan two decades ago.

      But conversions are very expensive and take years. They have to essentially gut the building. And that’s tough to make work financially when rents and condo prices aren’t high enough. I think it would be tough to pull off in Houston. But it may be a good solution in San Francisco, Manhattan, LA, and a few other spots.

      • MCH says:

        Wolf, there is always the Wework option. After all, they are going public again. Heh heh.

        Seriously though, I bet these tech plug and play as well as Regus centers could potentially be profitable if they can actually buy out the buildings given the right circumstances.

        As for Twitter and likes, if we’re without them, all the better.

      • Depth Charge says:

        Once the building goes into foreclosure and the next person has a much lower cost basis, it’s no longer tough to make it work financially. And that’s what needs to happen. Instead, we have the FED and CONgress destroying the future of the country to try to prevent the healthy market cleansing.

        • VintageVNvet says:

          Correct DC,,, and with newer ”old buildings” there are usually various and sundry dedicated ”chases” stacked in line from top to bottom, with space for PB pipes and HVAC pipes and ducts, and EL major conduits.
          While Wolf is correct re truly older office buildings being expensive to rehab — for any changes of floor plans and usages — most of the buildings I have inspected closely at ”pre-bid” site visits that were built in the last 3 or 4 decades are built to be more flexible, and thus much less costly to change to whateva…

      • Swamp Creature says:

        Yep, happened here in my old office building which used to be the HQ of the National Weather Service. It was a dump then and has been converted in a residential condo slum now.

        Highest and best use all the way.

      • Kenny Logouts says:

        The UK is accelerating into the same approach to old offices/warehouses.

        Permitted developments rights are being relaxed more and more and I can see lots of the covid19 aftermath seeing lots of commercial landlords opting to go for residential use.

        But as you say. The cost!

        But it seems the UK is ahead of the curve again, with low quality housing unfit for use being the end result of loose regulation.

        It’s not a positive sign.

        This is where government short sighted thinking and mono-thinking experts meets with unforeseen paradigm shifts.

      • One can still find hotels with shared bathrooms. The conversions to housing needn’t be any more complex than that. It’s just not a reality that a corporation or billionaire property owner can grok. Yet.

    • cas127 says:

      Ok…but faster please.

      Because, otherwise (especially from a pre tax expenditure perspective) the mega metros *still* have goofy high rents…for the privilege of living in the highest tax states.

      Actually, this brings up a question for Wolf…regarding the exact mechanism behind the mega metro rent declines already to date.

      Zumper, etc. are reporting 15%+ annual rent declines in the most expensive metros…but in practice how could this really happen so fast (a yr or less) if old vacancy rates were really as low as previously reported.

      For instance, if LA was 97% occupancy pre C19…wouldn’t occupancy have to fall a ton to send LA rents down 20%+? Would this many people really move that fast? And where did all those people go?

      To judge by hiked rents…Newark, Detroit, Fresno…but that’s a lot of people going to a lot of blighted places (not you, Fresno) very quickly.

      So quickly that I have to wonder why rents are so sensitive to perhaps significantly lower actual move quantities.

      • Lance Manly says:

        “not you, Fresno”

        Have you ever been to Fresno?

        • cas127 says:

          Say what you will about Fresno, it ain’t Newark (“Dumped Body Capital of the World”) or Detroit (“Dumped Body Capital of the World”…there is a bit of a rivalry…)

        • Yancey Ward says:

          I spent a month in Fresno one night.

        • California Bob says:

          re: “Have you ever been to Fresno?”

          Have you?* Fresno is like every other Central Valley town along Hwy 99; there are very nice areas and some you might call ‘near slum-like.’ Most all the Valley towns grow to the north; newer, nicer developments are built on the north side, and the southern parts degrade over time. Yes, there is usually not much to recommend for arts and entertainment, though some of the cities have refurbished their downtowns and tried to jazz-up their nightlifes (Gallo Center for the Arts in Modesto, for instance is a pretty nice venue). The one CV town–on the south end–you’d want to avoid is Bakersfield: hard-right political bent, smog as bad or worse than LA, blazing summer heat, massive sprawl and oil rigs and spills everywhere (sometimes, it seems like you can smell crude in the air). No offense to Bakersfieldians–probably none reading WS–but, them’s the facts.

          * I was born in the CV–near Fresno–and have spent most of my 67 years there, except for a 3-decade stint in tech in the BA. It’s certainly not a vacation destination, but you’re equidistant between the Pacific and the Sierra Nevada. Not a bad home base.

        • Al says:

          Ahh, Fresno.

          You have to know Fresno really, really well to find her redeeming qualities…

          If I remember correctly, Fresno State’s football program was…notably unsuccessful for a long period of time.

  7. Wolf concluded:
    > older office towers – or rather their creditors – are in trouble

    Likewise, older rental units ( like mine ) are dying off.

    It’s a sight to behold.    Brazilian soap operas are less wild.
    Everyone wants to kill “me” ( the manager ), including the landlord.

    Just 4 ( out of 32 ) units are paying rent.
    “Breaking & Entering” happens daily.

    New construction gladly pays the “No Cheap Units” fines,
    so they don’t have to put up with lunatics who’d burn the place down.
    No one wants to rent a 5-star hotel room adjacent to thieving junkies.

    Like Japan & the Soviet Union, 1990,
    America & China have peaked.

    Blame “The Pigeon Feeders” ( Big Media,
    Big Tech & Big Government ) not the pigeons.

    Vice is rewarded.

        The Fed, in its infinite wisdom, made empty homes
        more profitable & reliable than a savings account.

    Virtue is punished.

        The god-like wisdom of Congress made sure that
        anyone foolish enough rent-out their homes would
        end up in an early grave, broke & destitute.

    • Seen it all before, Bob says:

      I both like and hate this for its truthiness now. However history says the opposite.

      “Vice is rewarded.

      The Fed, in its infinite wisdom, made empty homes
      more profitable & reliable than a savings account.

      Virtue is punished.

      The god-like wisdom of Congress made sure that
      anyone foolish enough rent-out their homes would
      end up in an early grave, broke & destitute. ”

      We have seen this before in the 1970’s when everyone in the inner cities fled to the suburbs. The motivation was different but the results were the same.

      Only the brave became the rentier class in the inner city then. The Rentiers became the slumlords scraping by on renting homes that formerly were worth 20X their former value. The rents and rentier class essentially did not exist to the extent it does now so most vacant houses degraded and collapsed.

      As it was in the 1970’s, it is now.

      The outcome in the 1970’s was horrible with many boarded up vacant houses in the cities with small/large businesses fleeing. Over time, with vandalism, homelessness, poverty there was no recovery. You can now own a free leaking boarded up house in inner city Detroit that cost some hard-working blue-collar person 10 years savings to buy.

      An optimist may say that this time it is different. It is! There is still time to save the cities before they degrade into nothingness like they did in the 1970’s. The rentier class may still save the cities if they have anything left to do it. Otherwise, Blackstone and others are standing by.
      They did not exist in the 1970’s so there is hope.

    • nodecentrepublicansleft says:

      God made anybody foolish enough to use an annual lease hate their lives.

      Down here in SWFL (Tampa, Sarasota, etc.), my friend….small time LL / normal person beat that system by only using a month to month lease.

      You can still evict somebody on a month to month around here.

      A Q-Anon supporting psycho she accidentally rented to (he comes across as sane for the first 20 mins you talk to him), thought he was going to be living in her home rent-free due to eviction moratorium!

      Imagine his surprise when he found out the reality (of the eviction, not the whole “Q” BS….he’ll never figure out that reality).

  8. Depth Charge says:

    Things are getting really weird out there. I was just watching a video showing the boarded up businesses in LA. Large portions of entire blocks are vacant, with homeless people and tents everywhere.

    Now we’ve got massive office space vacant. This on top of vacant houses everywhere due to people buying a new one and not selling the old. Yet prices on every asset are shooting the moon. Uh-huh….

    The FED and the government have absolutely destroyed the economy. This is a grotesque abomination.

    • MiTurn says:

      “The FED and the government have absolutely destroyed the economy. This is a grotesque abomination.”

      Reminds me of a passage in the Book of Isaiah where it records a curse of being ‘governed by children.’

      Yeah, that’s about right. No logic or reasoning employed, but a lot of ill-thought-out plans…

      • nodecentrepublicansleft says:

        Who could have been stupid enough to put those CHILDREN in charge of our GOVERNMENT?! :)


        the American public

      • Dave says:

        I respectfully beg to disagree. This has been thought out, logical for the wealthy, and intentional.

        For quite a while now the FED has decided to save the wealthy and let us scramble for the crumbs. Wealth inequality has soared, poverty has soared, and inflation has soared (contrary to the BS 2% per annum inflation goal) and the 1% have seen their wealth soar too.

        Game, set and match

        • Robert says:

          Absolutely right, Dave, except their game is not over until the final abomination, which is steadily moving ahead with minimal opposition: the institution of an all-digital banking regime. And for the banks that own the Fed, this is Valhallah: NIRP plus more special fees than on your phone bill and not one God-damned thing you can do about it, because you won’t be able to take your money out, stuff it in your mattress and them them to stuff it.

    • Frederick says:

      Jeremiah Babe right? I saw that one as well Pretty revealing and gasoline was 6 bucks a gallon

  9. stonedwino says:

    Commercial real estate was the best rentier class business forever, where you could literally print money, until Covid hit.
    Whoever owns commercial real estate is literally left holding the bag now. Th real question is, how much of a hit will banks take? You’ve got commercial RE plummeting with no bottom in sight, along with everything else, offices, malls, store fronts, apartment buildings, all in the same boat.
    Add mortgage delinquencies that are being swept under the rug by the government, holding off foreclosures.

    Wolf, what happens with banks when the proverbial shit hits the fan? It sure feels like the shit has already hit the fan…

    • RightNYer says:

      They’re not going to hold the bag. We will. The Fed will determine that commercial real estate (and CMBS backed by it) is too big to fail, and will buy all of their bonds at full value, to “make them whole.” I wouldn’t have thought so two years ago, but now I’m sure of it.

    • Wolf Richter says:


      The holders of commercial real estate debt are spread far and wide. Some of it is held by banks, some of it by pension funds, some of it by insurance companies, some of it has been securitized into CMBS which are held globally by bond funds and other institutional investors. Some smaller banks are heavily exposed to CRE loans in their area. But large banks have mostly spread the risks into all directions.

  10. Boomer says:

    How does this translate to the surrounding areas? For instance SF to the East Bay, Alameda and Contra Costa Counties. Or Seattle to Bellevue. You wonder how untenable these downtown area’s had become before C19. C19 is partly the impetus to get away from the blight that has developed over the years in these core area’s? It will be interesting to watch WFH evolve as the pandemic eases. WFH won’t go away but some Corporations are already putting their employees on notice they can expect to be recalled to the office.

    • Swamp Creature says:

      A lot of them will tell these WFH employees that they got along without them fine and now it is time to take a long vacation. Permanently!

  11. Swamp Creature says:

    If you want to know where the residential is going just look at the commercial real estate trend in the area. I’ve noticed over the years commercial real estate is usually leads the residential by a few years. Its happening now. Commercial is dead as a doornail. The entire downtown business district of the DC Swamp looks like neutron b#mb went off. Totally deserted. Looks like Denver Colo in 1987 after the oil bust. Same is happening in some of the close in suburbs. I would look at this and say its not a good to buy anything.

  12. Micheal Engel says:

    a blip

  13. Keepcalmeverythingisfine says:

    I see opportunity forming. Office rents and prices are scraping along the bottom. It is a process. Buy quality, buy the dip. Another way is to buy a REIT index, although it will be a while waiting for the turn around. Eventually the bounce will be huge.

    SFH markets will not suffer much in these areas (SF, LA) of falling office rents. The economy is coming back strong. I see gradually rising SFH prices for many years ahead in these areas.

    • Old School says:

      My base case from people I read is a reopening bump, but then European and Japanese growth rates for US. We have all the problems of low growth that we had since 2000 but even more debt and more government taxes and regs and aging demographics to carry going further.

      • Keepcalmeverythingisfine says:

        Yes, that is the likely scenario. I think the big gains in single family homes are mostly behind us. More gradual going forward, 3-5%/yr in growth areas and less in others.

        • Uncle Salty says:


          My SFH just popped 3% overnight due to another house in my neighborhood that sold for $50K above the ask. This is not a bubble, it’s a mania. I live in the suburbs of Porkland, Oregon.

          Either “assets” are allowed to implode, or the Fed eventually buys everything. I’m betting on the latter.

    • RightNYer says:

      The economy is NOT coming back strong. It’s “coming back” from government stimulus. The only way to maintain it without crashing is to make the stimulus permanent. Doing that will lead to more borrowing, higher yields, and a weaker dollar.

      The only way to be optimistic about the future is bury your head in the sand.

      • Turtle says:

        So the only way to prevent misery is to cause misery?

        The sooner it all hits the fan, the better. Enough can kicking.

        • RightNYer says:

          Sadly, pretty much yeah, that is the only way. The elites know that leaving the economy to its own devices will cause pain and suffering, so they’d rather kick the can until it literally doesn’t work anymore.

        • Lisa_Hooker says:

          When the road ends at a brick wall all you can do is kick the can again, immediately. Extra point if you can kick the can in the air after only one bounce.

  14. 2BFrank says:

    It this doom and gloom and deflation makes me wonder if Harry Dent is right, 20 years of Deflation anybody?.

    • Frederick says:

      I’ve begun thinking that way too Everybody thought Dent was nuts but sometimes the odd ball is the one who gets it right Contrarian thinkers shouldn’t be laughed at

      • Yancey Ward says:

        Historically speaking, they were burned at the stake, drawn and quartered, or hung.

        • 91B20 1stCav (AUS) says:

          YW-because few gladly hear that their current ‘bad luck’ is often a result of the too-human propensity to practice expediency over a proper SWOT analysis in all matters…

          may we all find a better day.

      • Old school says:

        Yep. We must be coming to the end of financial assets to gdp ratio. It’s 6.5 x now. There must be an upper limit, but with rates pinned to zero it might be higher than I think. At some point you just will not be able to do any economic calculation on what to do which is a really stupid corner to paint yourself into.

  15. Ron says:

    Why is no one talking about farmland the backbone of the world farmers losing there ass one reported losing 100$ a acre on corn oh they are receiving huge checks from government when this socialism ends only the prudent survive paid off land and equipment look at 80 s buying machinery for 25 cents on the dollar

  16. Seneca’s Cliff says:

    You think downtown high rise office space has a problem, how about the high rise office towers in non descript parts of the burbs. Near me in the western burbs of PDX there twin multistory towers with “Synopsis” on one and “Salesforce” on the other. They are surrounded by huge parking lots that have been totally empty since COVID started. Not sure these will be good for much of anything but practice areas for the fire department, or movie sets.

    • MiTurn says:

      I eould imsgine, a few years back, that a community college or other higher-ed institution would be intetested. But that sort of thing, especially a four-year degree is passe. Not worth the investment in most cases and universities across the nation must either downsize or disappear.

      Or, hah hah, charge reasonable prices!

      • VintageVNvet says:

        Or, equally ha ha, mit,, actually provide a quality education, based on reality instead of the ivory tower imaginations of deluded and totally out of touch folks, usually these days on way too many synthetic pharmaceuticals and propaganda.

      • Turtle says:

        But how would these “schools” pay for acronym-shaped swimming pools and artificial ski slopes?

      • David Hall says:

        People with no college credits earn more than drop outs with some college, no degree.

        A master electrician may earn $70,000/yr without attending college, after years of experience. It varies from state to state.

        A master plumber with a contractor’s license may bid on jobs.

    • Yancey Ward says:

      When “Die Hard” is rebooted in the next 5 years, there will be plenty of properties to serve at Nakatomi II.

  17. Anthony A. says:

    North side of Houston checking in here (The Woodlands, TX – Google it).

    Yep, empty office buildings everywhere in sight.

    Plus, MANY new and old strip centers are pretty much vacant.

    My stepdaughter is STILL unemployed (13 months now) from her layoff from an oil & gas company that doesn’t exist anymore. She was their head accountant.

    She’ in forbearance with her mortgage and bills out the Wazooo! We are helping her and her son who just had a big dental bill.

    Oh, just got our property tax assessment for 2021 in the mail – Land value doubled and the improvements (structures) up 10%. I will be paying more county tax this year. Same with my friend’s assessment – across the board tax increase. Really hurts being retired and on a fixed income.

    Maybe I need to go back to work? But at 77, who will hire me?

    • Yancey Ward says:

      You should have run for president.

      • Anthony A. says:

        You know, I actually thought about that last summer. But I couldn’t decide on what party to go on.

    • Texas Land Investor says:

      Anthony – Texas is a hard place to retire as they only freeze the school property tax at age 65, which is often half of less of the tax bill. My company operates in multiple states, and I have to say I really am sad how Texas is allowing all the Texas born citizens to be driven out of their homes and properties, and replaced with some of the wealthy world citizens from Russia, India, CA, NY, etc. I have a friend who owns a $35,000 metal shop/shed which he attempts to live in like a “barndominium” on 9 acres, which unfortunately for him is not big enough to be “Ag exempt”. Hist $35,000 shed and 9 acres has seen a tax appraisal increase from $300,000 to $900,000 in the last two years, and at $900,000, that is about $25,000 in property taxes per year, for a metal shed, on 9 tiny acres. Does that seem reasonable? Sure he could “Cash out” and move, but not everyone lives their life for the sake of accumulating the almighty dollar. Some things are bigger than money, including be forced out of the home you have enjoyed for the last 30 years.

      And yes I know that Texas does not have income taxes. Yet I can tell you, from experience, that other states with say 4% income taxes and 1% property taxes are cheaper to live than a Texas metro area with 2.5%-3.1% property taxes and zero income taxes, for folks who make less than $150k per year and have $400k-$600k houses. Run the math, 3% on a $500k home in Texas is $15,000. With income exemptions for state income taxes at 4% on $150k, you might be paying around $5,000 income tax, and say another $5,000 on a $500k home at 1% property tax….thus $10,000 versus “Zero income tax” Texas $150,000 income with a $500k home at 3% for a total of $15,000 taxes.

      Every situation is different, but don’t be fooled with with thinking zero income taxes is necessarily less expensive. May states do not tax SS income, so I fail to see how retiring in Texas is cheaper if most of your income is SS based, and you are stuck with a 1.7-3.1% property tax rate that is increasing in value 10% per year, which is the state annual cap. If it was 2% cap like CA, that would fix this mess, yet like I tell people, Texas will be the last state to legalize weed, as they are by far the most stuborn local governments my company has ever done business with. Guess it makes sense as the elementary schools teach the kids to chant “you get what you get and you don’t throw a fit”. Texas treats my business nicely as citizen numero uno, yet not so sure where it places the actual humans in the priority ladder. Again Texas is awesome, for my business, yet not sure if they treat their human taxpayers as well as they do corporations. There is a reason Texas is rated number one for business in America year after year.

      • VintageVNvet says:

        Actually TLI, The Fraser Institute recently listed/lists a New England state as the most free economically, FL second, VA third, and TX fourth.

        Here’s a link to their economic freedom stuff, that Wolf may allow, or it’s etc.

        • VintageVNvet says:

          don’t know how that om got in there LOL
          obviously misspelled, eh

      • Anthony A. says:

        We are in a non-incorporated (The Woodlands Township) area and not going to be annexed by Houston for the next 50 years (our township paid Houston $18 million for that exemption.) Good thing. A problem here (our township) would be incorporation, as that would add services and expanded city government. We are fighting that each year in the local voting process.

        Yes, I am fortunate that I only have SS income and a pull from savings and a paid for small 2,000 sq. ft . house appraised at $270 K with low utility costs. So my property tax is about $4,200 annual with the over 65 years old exemption. We are at about 2% of assessed on property tax. I don’t think I can do much better moving to another state right now, and don’t plan to as family is here.

        Texas is getting expensive for the high income folks and for the folks buying price-inflated houses (not as bad as other places, though (YET)). I suspect Texas will enact a state income tax once the oil royalty money spigot slows and the empty office buildings and defunct businesses stop producing revenue and paying sales tax to cities and towns.

        Pretty soon there will be nowhere for old retirees to hide from high inflation, higher taxes, and all that. Maybe 5% CD’s will surface again! LOL

        Oh, and there is also health insurance and those costs to deal with, and they are ever increasing and more frequent for older folks. But that’s a topic for another thread.

        • VintageVNvet says:

          There are other areas that are much less taxed in fact AA, than either TX or FL,,, as well as some classic tax avoidance practices that one can still get away with (or as recently as five years ago ) in many of the more rural areas of what is referred to as ”fly over” parts of USA.
          OTOH, family is paramount for many folks, for sure. Before returning to the saintly part of the tpa bay area to care for elderly parents, we were in a county where ANY elected city or county politician that proposed or voted to raise taxes was OUT at the next election, no matter what colour they or their politics were, or what their name was or where their grandparents were born, etc. And the hired public servants similarly were handed their walking papers of they couldn’t make their budgets work.
          So, sometimes it took a loooong time for a sherriff deputy to get to a crime or accident scene, and the trash pick up was only private, etc., etc.
          As always, plusses and minuses for city and rural and in between.

      • nodecentrepublicansleft says:

        Sadly, your friend is not special.

        Along the Gulf of Mexico down in FL, many, many, many small time property owners were taxed out of existence as they were assessed taxes based on “highest and best use” of the parcel.

        You don’t have a 15 story condo bldg on your little beach front hotel property but we’re going to tax you that way.

        I don’t know if they ever changed it, but I read about it a few years ago and many owners said: “We had to sell it for development due to the taxes.”

        FL’s #1 economic engine (tourism) is about to probably a huge hit as 600,000,000 gallons of poison water is being dumped into Tampa Bay on the Manatee County/Hillsborough County line.

        People are already cancelling their vacation reservations in anticipation of fish kills, red tide, algae blooms, etc. It hit the east coast of FL horribly the last few years but national MSM doesn’t report on it much.

        Imagine paying huge taxes on your waterfront home while the water is full of dead, stinking fish? Welcome to Paradise!

      • RandomDan says:

        Checking in here from the biggest little city in Nevada – 0.6% in prop taxes in million dollar home, plus no income tax. We also have a cap of 3% increase in taxes per year on primary home, what’s not to like?

      • Happy1 says:

        This is very thoughtful analysis. I totally agree with you that property taxes are more important than income taxes for most retired people.

        My mother in law in SF is paying less than 5K a year in property tax on a home they bought in 1977. The home is worth about 1.5 million, but prop 13 protects her completely. She lives on social security and pays no state income tax at all. If you are a long time home owner with relatively low income, CA is better financially than moving to many o the adjacent states with higher property and flat income taxes paradoxically.

        Of course it’s a terrible place for upper middle income people who didn’t buy a home 30 years ago.

        The other factor you reference is the effect of increasing home prices. My property tax in suburban Denver has roughly doubled in 20 years and the protection for retired people here is not inflation indexed, my property taxes will be far more than my income taxes after retirement and will likely force me to move eventually.

    • Fast GT says:

      Yep, and still building like there’s no tomorrow .
      Contractor in the woodlands/ Houston area for over 25 years , never, NEVER have I seen the level of crazy out here, new residential subdivisions going up EVERYWHERE, new restaurants, new strip centers, new commercial/ industrial dock high going up next to buildings that have been vacant for a year or more in some cases.
      My tax assessments just showed up, they all went up bigly, two of them literally doubled on land value, totally unbelievable.
      I’ve worked in this town in construction since 1982 , have never seen anything like it, don’t know when it ends, but I know it’s gonna be biblical when it does.
      Side note Anthony, I bought my first home behind the woodlands just off woodlands parkway in 1993 right after I got married, I was 26 , my wife worked as a real estate appraiser, combined income about 85k , which was an excellent salary for this area in that time period, we were terrified to sign the paperwork on our first mortgage, 2000 SF , 14 foot tall ceilings in the living area, built in cabinets, big yard, fireplace, two bathrooms, three bedrooms , brick exterior.
      All in cost was 74k
      This was a new home, never lived in.
      Now, I see young people paying 300 k for their first “starter” home, smaller salaries than we had back then.
      They are looking at close to 1k a month, JUST for taxes and insurance!
      Buckle up , going to be a hell of a ride !!!!

  18. Availability is not dampening rents, and (generic) office space can be refitted in any number of ways. Someone commented that the Biden plan was taking cause with state and local planning commissions, and zoning laws, which over the years became highly restrictive, and the fee structures associated. Should that measure have any success the deregulatiory effect could create a boom in building and refitting buildings. After his comment on public transportation probably this must be an urban view for the future. Soylent Green New Deal? There are empty sage brush hills in E Riverside Co, with HOAs. We get rid of these adhoc housing and culture committees and maybe people will enjoy living near the great outdoors again.

  19. Mani says:

    Offtopic how recent biden 1.9 trillion dollars stimulus package is funded ? Via debt or via tax payer revenue? I didn’t see any big increase in debt after biden package

  20. Will says:

    So what happens when you have a hugely capital intensive task ahead of us like converting a significant fraction of office space across all major cities and a forecast/goal to make borrowing money much more expensive in the future?

    …I guess making holding money even more expensive would work?

  21. Ethan in NoVA says:

    The asking rents really haven’t moved that much considering the inventory glut.

  22. Jon says:

    Ambrose Bierce wrote:

    Many of them have legal families here and will be placed with them but the immigration system was gutted during the previous administration

    Every time I pass a work crew speaking Spanish, I wonder why those jobs don’t go to Americans? Now, those elites who are above me in status will argue that only immigrants will “take those jobs.” But why? Why are the wages so low? And I also ask why those elites above me insist on keeping asset prices inflated and health care costs monopolistically high so that Americans cannot use those lower wages as an honest day’s income?

    It almost seems, to me, a working-class guy, that our elites have made it impossible for a regular Joe to have a place to live and a decent income in order to justify bringing in millions of illegal immigrants so that they can continue to milk the asset stripping to their benefit. Then they’ll say that “Americans won’t take those jobs.” or, “Americans are too lazy.” or, “I’m compassionate towards those poorer immigrants.”

    After all, these elites believe, just as the real Ambrose Bierce said, “A penny saved is a penny squandered.” No, no, no, we want credit and printing for velocity! But it isn’t about velocity, it’s about stripping assets.

    But hey, keep continuing to feign compassion for those illegal immigrants while American citizens get screwed over. Helping the American working class would need real compassion.

    • Anthony A. says:

      The reason many “regular” folks around here (Houston) can’t get those jobs that only the immigrants will do is because the regular folks can’t speak Spanish. I see this a lot in posted jobs “must speak Spanish fluently”.

      • Cal says:

        And if you don’t and you somehow get the job, the hispanoparlantes will make your existence miserable, to and including refusing to speak English and causing accidents.

        Movement around here to not spend money in places that don’t hire our kids.

      • Petunia says:

        They do this in Florida too. Almost every job posting is for bilingual applicants.

        • VintageVNvet says:

          Maybe in SE coast area of FL Pet,,, certainly not true in general, and specifically not true in what some folks call LA, meaning ”lower Alabama” where many old timers, crackers of a sort, will be happy to tell you their ”kin” walked from.
          FL these days is a very diverse population, much more so than it was even thirty years ago, not to mention sixty-seventy years ago when I was a kid here.
          I have even heard that recently there are some ”native born speakers of English” working in the Hialeah city hall,,, what more decisive indication of diversity can you imagine?

    • nodecentrepublicansleft says:

      Sorry, it’s NOT the guy picking tomatoes…..

    • Happy1 says:

      True for construction and trades, but totally untrue for farm labor. Talk to someone who is a farmer and they will tell you that USA -born people who try their hand at farm labor rarely last more than a few hours. The work is so intense and backbreaking it pretty much only makes sense for people from the third world who are used to doing the same for a fraction of the pay.

  23. Yort says:

    I invest in the office furniture companies and must say that I am amazed that the second largest one in the U.S. has tripled in price from the March 2020 lows. I would have thought that corporations would not be busy filling empty offices with $1,000 office chairs, but it turns out that work from home individuals bought those $1,000 office chairs with stimmy, I’m guessing??? Sold puts on some at the bottom as I knew they would survive, and made good money yet I never could have imagined that they could triple in less than a year on the way up, as that usually takes 3-5 years from past recessions to get back to square zero…

    It really is different this time…unlimited Fed printing will works, until something, someday, breaks beyond an easy monetary fix. It may be really difficult to escape the unknown consequences no matter where one live across the globe. The fed has too much power over 7 billion humans. History has never seen 100% of the species controlled by one single person before, although we came close once or twice…

    The biggest irony will be when something does break, the MSM will print 12 months of “Nobody could have seen this coming” stories. Good to be a nobody I guess…

    • RightNYer says:

      “I never could have imagined that they could triple in less than a year on the way up, as that usually takes 3-5 years from past recessions to get back to square zero..”

      When you consider that we spent $6 trillion to replace $1.4 trillion worth of lost economic activity, it actually isn’t that remarkable.

    • Lisa_Hooker says:

      When pushing a ball underwater it is difficult to predict the direction it will pop up.

  24. Al says:

    It gives me a chuckle when I hear people say “employees won’t stand for returning to the office now that they’ve had a taste of WFH and it’s benefits”.

    That’s exactly BACKWARDS for two reasons:

    Reason #1:

    In the greater-Boston market employers are sending out “surrender letters” to their office space lessors in droves. Essentially, this amounts to re-affirming their commitment to paying the lease for its duration – while stating that they are relinquishing their right to occupy the premises for the remainder of the lease’s term. Obviously, the lessor has no problem with such an arrangement whatsoever.

    Why would a lessee agree to such a thing? Well, it’s how you get around the “Worker Adjustment and Retraining Notification Act of 1988” (aka WARN Act). If you ain’t got a work *site* any more – you don’t need to give your employees that pesky 60 days worth of notice (compensation)

    Reason #2:

    This one is more obvious. Obviously, office leases (particularly in urban locations) are pricey. I think you’re going to find that as man of these leases expire – they are not renewed. This will, of course, cause cascading failures in the Commercial real estate industr…

  25. Al says:

    Something that other commenters haven’t picked up on yet.

    Falling commercial office rents would be absolutely catastrophic for the balance sheets of cities and towns. In fact, all the “freebies” commercial lessors are trying to give their current lessees to entice them to stay (or at least mask their inability to pay) are beginning to extract a big toll around Boston because these freebies can generally used as expenses to reduce taxes.

  26. 2BFrank says:

    Re the speaking Spanish, here on the South Coast of England, the country of last/only employer for Europe , I am becoming more used to conversing in Polish and Spanish with the service industries staff, very soon I won’t need my native language any more.
    Changing topic Biden!! why?? that is just abuse of an elderly man.

  27. Stupid says:

    It’s going to only get worse for Houston. That town needs a giant purge. It’s coming. The depression is around the corner. The proud need to suffer.

    • nodecentrepublicansleft says:

      Wasn’t it Jack Nicholson’s “Joker” in one of the Batman flicks that said “This town needs an enema!”

  28. WES says:

    What interests me, is how little rents have actually fallen.

    • Al says:

      Rents in Cambridge, MA and Somerville, MA in March, 2021 have already recovered to be higher than rents in March, 2020 (and March, 2019).

      There were lots of units in February 2021 that have sat unoccupied – with the owners figuring the vaccination would send rents “back to the races”.

      Even more ominous – I’m starting to take notice of “tenant-at-will” arrangements – i.e. month-to-month renting. Nobody has caught a whiff of those since about 1982…about the time the “stagflation’ era ended.

  29. The Bob who cried Wolf says:

    This was all going to happen in time. The accelerated pandemic accelerated the work from home trend. As drones become more widely used more jobs will be lost and less retail space will be needed. It was all going to happen, just happened sooner is all.

    • Old school says:

      Wonder if there has been a good study on all of the great high tech economy the last 20 years productivity gains is the lowest ever?

      • Smith says:

        Don’t forget, just like constant email that expects a 24/7/365 response, people working from home often are at it for 12 hours a day or more, no time lost to commuting, dressing, hair and makeup.

        How’s that for productivity? The French had one good idea recently, no emails from companies to employees on nights or weekends.

  30. jon says:

    And they’re still building……

    • Del says:

      Alison Collins, the outraged school board member in San Francisco, who is suing her other politburo members as the Democratic circular firing squad tightens up, is married to Chris Collins a massive developer…So much for representing the Little People.

  31. historicus says:

    Conventions, Hotels, Restaurants, Restaurant supply, Hotel Supply, convention workers….

    When does that come back?

  32. Frank says:

    Hey Wolf, just wanted to let you know that this article got a shout out in the April 7 edition of the FT in their Alphaville section for further reading.
    Nice to be noticed.

Comments are closed.