Next Shoe Drops on Office Markets: State & Local Governments Dump Office Space amid Working-from-Home/Hybrid Model

Office vacancy rates are already huge, foreclosures of office towers are piling up, and office attendance is still very low, everywhere.

By Wolf Richter for WOLF STREET.

At the end of 2019, state and local governments leased 22.6 million square feet (sf) of privately owned, corporate-grade office space in the US, according to data by JLL US Office Research, cited by Bisnow. But thanks to the shift to the hybrid model, combining office and working-from-home, governments are reducing their office footprint. And by the end of 2021, the total amount of privately owned office space that state and local governments leased dropped by nearly 10%.

And this is just the beginning. JLL estimates that over time state and local governments could shrink their office footprints in leased privately owned buildings by 25% or 30%.

The space that becomes available in government-owned buildings due to the hybrid work model could then be filled by transferring departments that are in leased buildings to the owned buildings. In addition, space in leased buildings can be consolidated. Buildings whose leases expire can then be left to the landlord to worry about.

Many government jobs cannot be performed at home, but others can. And many employees find flexible work arrangements attractive, which makes it easier for governments to recruit and retain workers, in a historically tight labor markets where many businesses are already offering flexible work arrangements in order to be competitive.

The government of California already gotten rid of 767,000 sf of office space, for an annual savings of $22 million, and over the next three years will try to dump 20% of its leased office space, for $85 million in savings, California Department of General Services Deputy Director Monica Hassan told Bisnow.

In San Francisco, 26% of the total office space was on the market for lease at the end of Q4, a catastrophically high rate, and up from the single digits in 2018, and only slightly less catastrophic than Houston (31%) and Dallas Fort Worth (28%), according to Savills.

Last year, Fort Worth, Texas, purchased the 425,000-sf office tower that had been the headquarters of Pier 1 imports which filed for bankruptcy in 2020 and was liquidated. The City paid $69.5 million for the building and figured that it would have to spend $30 million on renovations to turn it into its new City Hall.

The tower will then consolidate 16 departments that are spread over nine city-owned buildings. “We’re going to empty them and sell them for the most part,” Fort Worth Director of Property Management Steve Cooke told Bisnow. “To sit here and say that it’s going to save us 30 million bucks, I can’t do that sitting here right now,” Cooke said. “But it certainly helps.”

This will put even more vacant office space on the market, in an office market that is already struggling. In the Dallas-Fort Worth office market, 28% of the total office space is already on the market for lease, worse even than in San Francisco (26%), and only slightly less bad than Houston (31%).

The Georgia State Properties Commission works state agencies that occupy 12 million sf of office space, half or which is in privately owned buildings leased from landlords. Lee Nelson, GSPC’s leasing manager and assistant director of space management, told Bisnow: “It seems like just about all of [the agencies] are in some stage of figuring out the proper way for us to be organizing our in-office experience going forward.”

Many agencies have budgetary motivations to reduce leased space, he said. The Georgia Department of Education has decided to reduce its office footprint at its 150,000 sf state-owned headquarters in Downtown Atlanta by more than half, with part of the staff working from home or in remote counties. “We’ll find a state entity to backfill it,” Nelson said. And so the vacant space would ripple through the sector.

In Nebraska, 18 of 80 state agencies, with 13,000 employees, still use working from home or hybrid work arrangements. “We surprised ourselves with our own capability to leverage this [situation],” Nebraska Department of Administrative Services Director Jason Jackson, told Bisnow.

“The savings are real,” he said. “I think future administrations are going to be hard-pressed to say, ‘We should be spending more on office space.’”

In terms of office workers returning to the office: The numbers are still dismal. Currently, the number of workers who enter office buildings is still down by 60% from February 2020, ranging from -70% in the epicenter of working-from-home, San Francisco, to -42% in Austin, based on data from Kastle, which provides entry systems for commercial buildings.

The average office attendance in the top 10 cities is still down by about 60% from February 2020, meaning that attendance is running at 40% of where it used to be. Clearly, more workers will be returning to the office, but many of them will be returning on a flexible basis.

A year ago, a JLL survey found that 87% of state governments were rethinking their real estate strategies, and 40% said this would likely result in a reduction in office space, while the other governments were unsure what impact this rethink would have on their footprint, according to JLL’s Hunt during a November webinar, cited by Bisnow.

This is the latest shoe to drop in the already struggling office market dotted with huge numbers of empty or nearly empty office towers. In many major markets, the amount of vacant office now on the market for lease has exploded.

Older vacant office towers can be bought for cents on the dollar in the foreclosure sales that are now cropping up. For example, in Houston’s Energy Corridor, a 420,000 square-foot Class A office tower that was completed in 1983 and renovated in 2005, and was “valued” at $121 million in 2014, was sold in a foreclosure sale for $20.6 million. Read… What are Vacant Office Towers Worth? Foreclosure Sales Show How Values of 1980s Office Towers in Houston Have Collapsed, Dishing out Huge Losses for CMBS

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  161 comments for “Next Shoe Drops on Office Markets: State & Local Governments Dump Office Space amid Working-from-Home/Hybrid Model

  1. Flea says:

    Similar to China real estate bubble?

    • YuShan says:

      The difference is that many of the Chinese buildings were always empty :) They were never intended to be rented out.

    • historicus says:

      The great assumption here is that Government employees “work”.

      • AlamedaRenter says:

        Please don’t call 911 when something bad happens to you. Please ans thanks.

  2. Confused says:

    If the country switches permanently to working from home 3 to 4 days per week, such that employers don’t need as many office buildings and parking structures, what other changes are likely? For example, will it make financial sense for cities and states to build and maintain freeways and subways?

    • Anthony A. says:

      Not everybody can work from home. That really applies to office types who input things into computers. People who make things still have to go to manufacturing plants, service facilities, etc.

      • Depth Charge says:

        Most of those people don’t produce anything and are going to be the first ones let go once this whole fake economy collapses.

        • Lynne says:

          Watch how fast you opinion changes when your favourite app goes down…

        • El Katz says:

          IMHO, this will have more of an effect on middle management than the worker bees. If they have no one to manage on site, they become the targets of upper management.

        • Depth Charge says:

          “Watch how fast you opinion changes when your favourite app goes down…”

          I have ONE app – my banking app on my phone. Apps are for suckers who like to have personal information stolen – errr “gleaned.”

        • w.c.l. says:

          Does that mean bosses will have to fire themselves first?

        • SK says:

          I have ZERO apps and have no intention of ever installing any of these data mining and surveilllance programs on the smart (dumb) phone, particularly for highly sensitive activities such as financial, medical, etc.

    • Wolf Richter says:

      Confused,

      Yes, this raises some huge questions. City planning is going to be impacted by this.

      Freeways becoming less congested would be a good thing, though. Less money spent on fuel to commute to work (serious $ savings, less pollution) would also be a good thing.

      The more immediate question now is what to do with all these older vacant office buildings. Some might be converted to residential — but this works only with some buildings. Many others won’t work as residential, and might eventually be torn down, and be replaced by a residential building. The commerce built up around office districts will change as well, with some of it moving to residential areas (delis, cafes, restaurants, etc.) where people are hanging out more often.

      • Confused says:

        Hi, Wolf,

        After living in high rises located in Crystal City and Skyline, I know I would not have chosen to live in either location if I could have worked from home 3 to 5 days per week. Of course, as another person commented, some people must go to a workplace every day, and perhaps additional condos and apartments will satisfy their needs. I just hope that government agencies are thinking about the ramifications of permanent WFH.

      • Craig “Stikman” Glaspell says:

        In Orange County, la, socal, the freeways seem as horrible as pre pandemic, im sure there are data to provide traffic meters, but it’s so bad to drive here again….and I know so many people still working from home…so why are they all on the roads?

        • Wolf Richter says:

          In the Bay Area, mass transit traffic is way down. It seems lots of people who used to take mass transit are driving. But congestion is less than it was, according to my wife who drives into Silicon Valley every day.

        • TheFalcon says:

          Agree. Rush hour traffic is almost as bad as pre-pandemic in Socal.

        • Swamp Creature says:

          Traffic here in the Swamp is worse than before the pandemic hit. Add in the truckers freedom convoy and its complete gridlock.

      • waldo says:

        That’s exactly what needs to happen all needs to become housing affordable housing

      • Tony of CA says:

        It’s fundamental than repurposing buildings. What is the point of densely populated cities if remote work becomes the norm. Why live in a bit like San Francisco if one could would work out of their home in Napa?

      • cas127 says:

        We’ve all commented somewhat frequently on how office space may not be suitable for redevelopment as residential (inadequate plumbing, etc.).

        I wonder if a post exploring *easier* conversions (server farms? office bldgs are designed for heavy telecom and server farms are booming…) might be worthwhile.

        Surely somebody in the WS peanut gallery has CRE experience, maybe even this exact conversion experience.

        Last mile warehousing? (City core too crowded for trucks? Freight/former passenger elevators interchangeable?)

        Online retail showrooms? (So no need to buy unseen/untouched?)

        Physical item/document storage?

        Medical/hospital use?

        I have no idea what might work, but surely bk’d office bldgs have been around long enough for there to be *some* clear redevelopment success stories.

        • Peanut Gallery says:

          Darn it. Someone said Peanut Gallery and I thought they were talking about me.

      • Doctor Whooves says:

        The data on pre-covid vs post covid is very interesting. You can look at the data yourself by getting a PeMS account with Caltrans.

        We know a lot about travel behavior patterns. People on average travel about 1 hour a day. So an average person going into an office 5 days a week will chose to live closer to work than say a firefighter that works a few 24 hour shifts a week. Firefighters commonly live farther away than other professions. Pre-covid, employees with tech jobs where only 1 day a week in office (SF or SV) was required were choosing to buy homes in the central valley and sierra nevada and make a 2-3 hour one way commute one day a week.

        Now that so many jobs are going to be hybrid or remote going forward, we’re seeing big changes in where people choose to live. People are living farther away from work with more personal space, mostly suburbs, exurbs, and rural areas. This makes it harder to use transit if they have to go into the office. In terms of the cumulative vehicle miles traveled (VMT) impact, it looks like we’re seeing more, not less. Instead of a morning peak, midday lull, evening peak, now the data is morning increase to continued midday rise to evening peak on many highways.

        BART was built to get people out of their cars to take transit to work. But since BART enabled people to move out of SF/Oakland (urban areas) and into the suburbs like Walnut Creek and Pleasanton, it actually increased VMT, a lot. Maybe the work trip was on BART, but now all other trips were done by car.

        So expect freeways to get more congested in the future with hybrid and remote work. Also, the California Transportation Commission isn’t approving any capacity increasing projects because that would increase VMT and GHG emissions. Expect cities to be slow in creating an adaptive reuse ordinance for office buildings that stay vacant while the homeless population continues to grow.

    • Augustus Frost says:

      In Atlanta where I live, I used to think that WFH was the best solution to traffic congestion, but I have been proved wrong so far.

      I WFH too but will go back for the first time on April 6. Afterwards, intermittently. I have no idea where this traffic comes from when I do get out but suspect some of it is people supposedly working who are not. Probably most though working irregular schedules just running their errands.

      Here in metro ATL, I don’t see that there will be any reduced demand for road construction or maintenance. Too many people here driving too many cars. Population is up about 4X from the first time I moved here in 1975.

      • Anthony A. says:

        The highways are packed in Houston all day too. Plus, the local golf courses are so full that getting a tee time is near impossible. I guess a lot of the WFH folks are working the night shift in their homes around here.

        • andy says:

          The NWFH types are everywhere. At least 3 out 5 working days a week.

        • Michael Gorback says:

          I’ve noticed that Houston traffic still sucks no matter what time you choose. I have have to go through what I call “the belly of the snake” (the horrible winding/merging mess around Allen Parkway) on my way to my cabin 2 hrs north and back and it’s always a nightmare.

          OTOH my daughter and son-in-law came to visit my cabin and spent an entire day just doing WFH. I was also doing WFH (cabi ) filling and repairing corn feeders and clearing fallen trees from the trails. My main problem with traffic at my cabin is cell phone signal.

        • Swamp Creature says:

          Anthony A.

          Stop complaining about tee times. Just have a rotation where one of you in your foursome gets up at 3AM in the morning and starts hitting you speed dial on your cell phone to the tee time booking number. May take 1 hour or so but just DO IT!

      • COWG says:

        It sucked when I lived there in the early 80s… ten times as bad now…

        Crossroads of I75, 85, and 20…

        A lot of that traffic isn’t local…

        But that doesn’t help when you’re in that mess sitting still…

        • COWG says:

          ATL… that is…

        • Augustus Frost says:

          I was in high and college working at Kroger then, so I was not commuting any distance during rush hour.

          But I did drive a lot recreationally during my free time during off peak hours. Traffic was nothing compared to since I moved back in 2011. Now even on weekends, there is (heavy) congestion for several miles approaching any interstate interchange.

          It’s become completely ridiculous.

        • cas127 says:

          Plenty of road travel stats put out by gvts…wonder if they correlate with these anecdotes or office vacancy stats.

      • Ted says:

        Augustus Frost,

        We live near Chicago. Four years ago we took a long driving trip to your neck of the woods to see the sights (Sherman’s march to the sea) and relatives.

        We have driven in most of the large metropolitan areas in the East and Midwest.

        Our subjective opinion – four years ago – was that Atlanta was the most traffic congested city we ever visited.

        Not the most confusing. We feel Boston and Washington DC tied for that.

        The people down south were uniformly nice and friendly. It must be a great place to live … if not to drive.

        • Michael Gorback says:

          Spent 3 years in Boston and got my black belt in Boston Combat Driving.

    • Apple says:

      Mgmt is loathe to give up those plush corner office with a secretary. It will take about 20 years, after they are all retired, before there will be a seismic change in Fortune 500 offices.

    • Marcus Aurelius says:

      You can guarantee your fees or taxes will NOT go down.

      Rather, the Governments, at all levels, will keep, or even raise all the fees, etc. so as to give themselves raises, and a boost in their Health Care coverage, and Pension plan payouts.

      None of this is being done for the benefit of the “tax payer”.

      This is just the sam,e old, worse service now that we have computers.

      Soon, the Government workers will realize that “Work From Home” translated, means, “Work From India”.

      I am glad I have a “profession” that can not be sourced out nor AI replaced, at least in my remaining “life time”.

      • Educated but Poor Millennial says:

        If they cant export your job to India, then they will import Indian, Mexican, Chinese and the rest in here, if they need , they will lift the gate up, LOL.

  3. Flea says:

    Houston energy corridor = great reset but only 60% ,of correction wait till market correction,then 90/10 rule

  4. Voltamom says:

    With respect to lack of workers/war for talent, my state government in Maryland just dropped the 4 year degree requirement on thousands of state jobs. Hundreds of positions have been unfilled for the last 2 years.

    • Jung says:

      Seems like the standard approach is to avoid paying market rate for positions by slacken standards. The public sector typically doesn’t compete for labor so much as pick up the scraps (or if they’re luck find someone willing to do the job as charity).

      • Apple says:

        UCLA a few days ago had a job posted for an Assistant Adjunct Professor in the Chemistry department, salary was $0.

      • Zark Muckerberg says:

        Yeah also you’re pretty much stuck on the ladder, everyone before you are “lifer” until they retire. At least you won’t get laid off.

    • Depth Charge says:

      The local Panda Express has a sign offering $21 per hour starting pay, and is having difficulty finding anybody.

      • roddy6667 says:

        In 1987 in CT McDonald’s was having trouble filling openings at $8.00, which was equal to about $21 an hour now. In 1988, the Eighties came crashing down. Real estate lost half its value and the economy puked. That solved the whole problem.

        • Depth Charge says:

          I don’t know much about CT or the east coast, but this reminded me of a conversation I had with a guy seated next to me on a flight in the late 1990s. He was originally from Concorde, NH, and he told me he never could sell his house there. He said there were houses all around the neighborhood and town that had been for sale for years with no buyers. He told me it was a terrible place to buy a house, that you could never sell it again.

        • Jake W says:

          new hampshire has no income tax or sales tax. if you don’t mind the cold winters, it’s a nice place.

    • MarkinSF says:

      Great. Now the Education Industrial Complex can begin to unwind.

  5. Frank says:

    Doesn’t look good for REITs.
    This market disruption does have a positive side. Low-cost space for a new generation of businesses. Repurposed for who knows what… whomever figures this out will be very rich in 10-20 years. Finally an opening for the next generation, whom have taken it on the chin in so many ways. We keep bailing out legacy business which stifles the painful churn necessary for innovation.

    • Ted says:

      Got a reit for you to check out DOC. You can’t get an exam or a test at home.

    • Augustus Frost says:

      No, they won’t be rich in 10-20 years.

      It’s not just WFH but the loosest credit standards in history which have created a fake economy and with it, fake demand for commercial real estate and it’s not just office space.

      My prediction is that in 20 years (if not 10), there will be less demand for most if not all commercial real estate in the US than there is now, though this won’t be true in every market.

      The majority of Americans are destined to become poorer or a lot poorer.

      • YuShan says:

        Not just Americans but most of the Western world is going to be much poorer.

        Btw, who owns this real estate? I guess it’s your pension fund (if you have one).

        On top of $30T official debt and multiple times that in unfunded liabilities that GROW with inflation and will have to be paid with increased taxes or be defaulted on.

        Prudent people saw this coming, so they saved and then got f***ed over by the central banks.

        End of rant :)

        • Augustus Frost says:

          Yes, most of the western world.

          Much of the rest of the world at least temporarily too when the mania breaks but for the west, it will be a permanent decrease in their relative living standards.

          Permanent as in for the indefinite future.

        • Jake W says:

          augustus, wouldn’t the places in the world that still produce things have a relative increase, as they aren’t effectively trading their stuff for printed dollars (or euros)?

      • Marcus Aurelius says:

        The “key” to the solution is what the Chinese have done and show.

        Manufacturing.

        Think of all the links and other professions linked to running factories, and building them, etc.

        These office towers will fill up if we ever become Capitalist like the Chinese, and realize Agriculture and Manufacturing are the economy.

        It is very simple to return manufacturing to the US. Things sold here have to be made here. Maybe, maybe, raw materials can be imported and processed here, but in the US we have most everything.

        Then, find ways to reduce property taxes on all businesses that create a “real” material product. Not movies. Not Restaurant etc.

        Find ways to reduce, reduce, reduce, regulations, fees and permitting requirements.

        I know, I know, such ideas as the above will not happen, until after the massive collapse. Even then, we don’t have the leadership, philosophy, work ethics, religious ethics, etc. to rebuild.

        • Anthony A. says:

          M.A. – You can’t go back!

          The Mad Max movies are really our future. All the “monied” politicians, crooks, shysters, scam artists, etc will have left the place and only us peons will be left with the empty skyscrapers and old burned out cities.

    • andy says:

      They could open up space for general buissnes and call it “We Space” or “WeWork”. Could make a billion. Timing is everything.

    • Jon W says:

      I don’t think anyone needs to figure it out. They just need to reduce the prices. I have worked in startups for much of my career, and they can always use more space, but prices are absurd.

      It’s like in central London. There will never be a problem ramming central London commercial full of people, but there is clearly a problem trying to do so at pre-pandemic prices.

      Unfortunately in our up-side-down economy, when the price of rentier streams reduces it’s a huge issue that apparently threaten our collective existence, yet when you’re a business having to slash your prices due to intense competition, everyone says it’s just the free market/survival of the fittest/creative destruction at work etc etc.

  6. BackRoad says:

    The question is when do we start to see major distress in office market? Banks that hold loans against office buildings? Prices across the board in office real estate have not fallen that much yet on a wide scale. I guess because leases are long. But these buildings have been sitting with low vacancy for two full years now, and the capex is very high for landlords who own office towers. Something has to give soon?

    • Wolf Richter says:

      BackRoad,

      “Something has to give soon?”

      Yes, something has to give, but real estate moves very slowly. The signs are everywhere, including in the article I linked about the two sister towers in the Energy Corridor in Houston that finally were liquidated at a huge loss for lenders. But it can take years from an office-tower loan going to special servicing and the foreclosure sale:

      https://wolfstreet.com/2022/02/17/whats-a-vacant-office-tower-worth-foreclosure-sales-show-how-values-of-1980s-office-towers-in-houston-have-collapsed-dishing-out-huge-losses-for-cmbs/

      • BackRoad says:

        Thanks Wolf, I read that article, very interesting. And thanks so much for the terrific investigative work you do on this web site. I’ll have to review the charts of REIT’s that hold mostly office buildings.

      • JayW says:

        And with a hyper flexible FED & Congress, we can now count on forbearance and moratoriums for loans & rent making a comeback once the downturn starts. So, real estate is guaranteed to never drop again like it did in 2009 over several years. YAY!!!

        *** Between you me and the wall, I think their planning for the big one (brings us to our knees) in about 8 years.

        • JayW says:

          And maybe, just maybe, this time around Uncle Sam will go all in and start forgiving commercials loans. Just print money like crazy and let all the banks backfill their losses. It’s a WIN WIN!

        • Marcus Aurelius says:

          Try 8 Months..

      • Harry Houndstooth says:

        Pure Wisdom dispensed daily.

        Personally, I am astounded that Wolf chose “Nothing goes to Heck in a Straight Line” for the beer mug.

        This is message on how to profit as Wolf has shepherded the truth.

        On the open on Monday March 21, 2022, it appears the rally off the news of the first quarter point Fed tightening reached it’s apogee. Three or four days of enthusiasm or despair is about as long as the bull-bear has been cycling, especially with the 3X vehicles SQQQ and SRTY.

        So, the market may go up higher, so have some dry powder, but after 3-4 days of up move, it is more likely than not that the the bottom is going to fall out.

        If the markets keep going up and break out new highs after the first Fed tightening, it will be the first time in history.

        • Harry Houndstooth says:

          Ladies and Gentlemen:

          I would like to offer $200 for a Wolf Richter “Nothing Goes to Heck in a Straight Line” beer mug.

          Harry Houndstooth

        • Wolf Richter says:

          Just to update everyone…

          I reordered the mugs May 31, and getting them has turned into an exercise of utmost frustration and exasperation. There is still no firm production date of the blank mugs, though there are unconfirmed rumors that production will start soon. I’ve been offered other mug styles, but that particular SKU (along with many others) continues to be deprioritized. This beer-and-ice-tea mug shortage is really getting to me.

          Maybe we should start a trading floor where these mugs and mug futures can be traded :-]

        • Zark Muckerberg says:

          Hopefully there is an out the wazoo style where I can dump the drink with a lever

        • MarkinSF says:

          @Wolf
          Not sure why you’re resisting the T-Shirt thing. Probably easier to get AND they’d be an advertisement for you empire.
          Hell, I’d wear one proudly around town

        • Wolf Richter says:

          There are like only three days a year in SF when you can even wear a T-shirt :-]

        • Swamp Creature says:

          I’ve got 2 original Wolf Beer Mugs. I want $500 for my extra Wolf Beer mug. Any takers???

  7. R2D2 says:

    First, the factories disappeared…

    Next, the shops disappeared…

    Finally, the offices disappeared…

    • Depth Charge says:

      …and everybody became fantastically wealthy sitting on their couch trading crypto every day…

      Oh, wait…

      • stan6565 says:

        … in metaverse…

      • Anthony A. says:

        It’s pretty simple, really. Just buy it when it is down and sell it when it is up. It’s better than having that pension thing, whatever that is.

    • Marcus Aurelius says:

      Then, Social Security and Medicare benefits were cut 25-50%.

      Then the Pensions and 401s and IRA’s were exchanged for Treasury Bonds.

      Then people who spoke Chinese showed up with the lien papers.

      Then, the paper used as currency disappeared, and everybody holding the “cash” bag asks:

      “Where did all the Gold & Silver go?”

  8. Hal says:

    Most of these office buildings have 4 HUGE bathrooms per floor. Not an easy change to residential units.

    Then, you have hideous drop ceilings that no one wants to live with. And on and on.

    You’re talking massive investments to convert to residential. For what ROI? Maybe the restaurants and groceries come later, but it’s a huge, high risk investment.

    • andy says:

      However, Salesforce could have the tallest WFH tower west of Mississippi.

    • JayW says:

      It still makes sense though to do this conversion, and it will make the tree huggers happy that we’re building up instead of out.

      But, keep in mind no matter what the Realtors Association says, there’s not a housing shortage, in general. Is there a shortage of starter homes. Sure, absolutely, but all the housing industry is doing is following the lead of US auto manufacturers.

      What we have is a shortage of sellers willing to sell, because they know they really can’t afford to move up. And many of them (baby boomers) need to move down. So all these active retirement subdivisions going up have replaced the started home but at twice the prince, because the baby boomers can afford these semi-custom homes.

      • Marcus Aurelius says:

        There are “starter homes”. Millions of them. I pass entire neighborhoods of starter homes, built from the 1950’s all the way to late 1980’s.

        The problem, nobody wants to live there.

      • Depth Charge says:

        There is no shortage of housing stock whatsoever. There are estimates that more than 10% of single family residences are empty across the US. What there is a shortage of is right-priced houses, which the bubble caused. What needs to happen is a 75% decline in house prices.

        • Jake W says:

          correct. there’s a shortage of people willing to sell, because of a reckless fed that is causing massive inflation. if you allow people to sell houses they don’t need and not steal 8% of the proceeds per year, suddenly there will be a glut.

  9. Will V says:

    Thanks for great data and analysis Wolf. Though the work from home model works well in some professions, in the medical field we are seeing more patients return for “real” office visits which are better at assessing and caring for patients. Its not that telehealth is “bad”, it has its place for the 40 year old who want to just review cholesterol levels, but anecdotally “in office” visits have help identify skin lesions that were melanoma, pick up on asymptomatic atrial fibrillation (that your Apple Watch didn’t catch). In office visits / urgicare will not go away but will return to normal levels shortly and then increase. But of note independent small medical offices are dead! From the inside of the field, everybody and their brother is consolidating either with a health system or “private equality” in the more lucrative specialities ( dermatology, orthopedics). If you are going to invest or speculating in “medical” real estate go for the 20,000 sq foot medical “home” at a minimum, bigger is better. Unfortunately converting “office” space to medical space is very expensive (plumbing for sinks and bathrooms, lighting, access for wheelchairs and morbidly obese patients). New medical on the east coast (philly/baltimor/dc corridor) now at about $300 sq/ft. Don’t fear quality “big” medical space.

    • RedRaider says:

      The choice isn’t just between telehealth and office visits. What about the old fashion model of doctors making home visits? Seems to be a nice fit for the WFH movement. And that’s the problem. We just don’t know before the fact what’s going to be the winning model.

      • Medical doctor home visits do exist, primarily for the ultra wealthy (mainly individual doctor practices charging privately whatever they want) and Medicaid populations (companies in big cities that have revolving door staffing of relatively underpaid NPs, PAs, MDs). Nothing much out there for the middle class homebound unless they can pay or happen to have access to community rescources.

        My niche medical auditing field became hot in the last few years as burned out medical providers sought WFH positions. Unfortunately its due to insurance companies contracting auditors to pour over claims and records to deny or reduce payment for everything and anything. Its becoming increasingly difficult for providers to stay in business accepting the hassle and pennies of Medicaid reimbursement for their services. Medicare reimbursement is a nightmare of compliance, RACs, CERTs, and constant pull backs.

        Healthcare greed is its own blog, but its not hard to imagine subscription and a la carte medical services becoming more common as the healthcare industry implodes on itself. Inflation and housing costs are only going to hasten this. We can only squeeze but so much out of a medical record.

        • Marcus Aurelius says:

          The money in Sickness Care does not go to the Doctors and Nurses, who are the only ones who provide Care.

          The money goes to, and is kept, by the huge Insurance Companies. Then the next level is the Hospital Corporations who keep a huge chunk. Neither provides the care.

          What is sad is the entire “Industry” feasts is on the backs of the MDs and Nurses, who do all the real work and provide the real value.

          The above two Industries are parasitic, really producing nothing, create huge amounts of paper-work, intentionally make all billing and coding confusing, and decrease the Care.

          The Solution? MDs own the Insurance Companies and the Hospitals as Non-Profit centers, as they used to decades ago, and in turn are Audited by the States, retired MDs and Nurses, and Policy Holders.

          Also, return to the Catholic Hospital concepts and to the hospitals designed and started by the Original Dr. Mayo and Dr. Hopkins, etc. and the Philanthropists who wanted the Ego Boost.

          Why don’t Gates and Bezos build Non-Profit, “Charity”, Hospitals rather than toy rockets to nowhere?

          Hospitals are a facility. Not an Industry.

          Health Insurance Companies are a billing and collections agency. Not a Health Care Provider

          Reduce Billing & Coding complexity, or get rid of it. It is draining the life out of Care. Some aspects are down right criminal. Patients can not understand what they are paying for (designed that way) and sadly, the MDs and Nurses don’t really understand it. Thus, constant auditing, charge-backs, denials, which hinder and decrease Care.

          Next, everybody, everybody must pay for their health care individual services no matter who they are or how much they make. No more jacking up the bill on what patient to pay for the ones who disappear or refuse or move back out of the country.

          Yes, yes, I know the above will never happen, thus the best thing you can do? Do ALL you can to decrease your probability of getting sick, and do all you can to avoid Hospitals.

        • Marcus, I can’t seem to reply to you so hope this suffices.

          You make a lot of good points, but the aides deserve a shout out as well. They do God’s work for minimum wage. Very hard to staff them in my neck of the woods these days, they can’t afford to live here and work. Neither can the nurses for that matter.

          However, ICD-10 is worldwide (‘International Classification of Diseases’) so not just the US, and serves its purpose in tracking public health trends and concerns as well as fraudulent billing. Not like anyone uses it properly much less the Z codes.

          Getting rid of Patient Satisfaction scores would be a great step toward uncovering the gaslighting in healthcare delivery. The biggest improvement would be halting executive bonuses until the staff can first afford to live where they work, and patients can stop paying $3k to simply walk into the ED, but a gal can dream.

          Arguably the largest issue is healthcare maximizing profit by defining cure as managing symptoms, instead of, ya know, rooting out disease causation to apply actual cure which is typically much less profitable, much more time consuming and outright inconvenient in a society indoctrinated on quick fixes and pills as modern miracle. Truly another hole not situationally appropriate to dive into of course.

      • RockHard says:

        It’s not just health care. I closed on a refi 2 years ago and the title agent came to my house for closing. Used to be I’d have to drive to some office building so we could sit around for 30 minutes and sign documents. Now one person drives around town and collects signatures The title company might not really need that office any more, especially with digital records.

        • Marcus Aurelius says:

          That is why Docusign is worth $2 Trillion?

        • COWG says:

          Florida just needs a notary to close…

          They have people who specialize in that… Title Company, where ever, Fedexs the docs to them…

          Physical signature on documents…

          Came to my house.. 20 mins.. see you later…

      • Will V says:

        Paying the health care provider to travel will not end up being a cost efficient way to deliver care. A standard 99213 office visit for an established patient pays $92 – estimated time 15 mins. Four an hour = $368/hr but primary care overhead is 55-60% now days so the doctor is making about $165/hr after overhead. Yes SOME of the overhead money could go away but there is tons of background stuff that happens (insurance prior authorizations , prescription refills) that still need to be paid for even if the “doctor” doesn’t have an office. The office building “expense” is the cheap part. Still will have to pay behind the scenes people (telephone answering, insurance authorization and prescription team, billing at least $25/30 hr + benefits even if they WFH.) Your 80 year old grandmother with Aetna medicare advantage isn’t going to authorize and schedule her own MRI of her painful lower back and pre-scan lab work with her “iPhone”. And when the scan comes back abnormal she not setting up the “required” referral (transmitting demographic and insurance information with ICD10 codes) with an in network provider for her “epidural” shot. Just my two cents, medical offices will exist for sometime they will just be “system” owned or “private equity”

        • Marcus Aurelius says:

          And the Patient will be treated like cattle, (“subscriber”) and be given a #number since it has to be that way with the system we have.

          I wonder, how many readers caught the “15 min” concept with a payment already accounted for…..like the signs you see in the car repair shop. But, there is no difference between the two.

          Get them in. Get them out. Take the “hourly” fee and find ways to up-charge the customer-subscriber-member.

          Also, notice with the Grand Mother example, the Grand Mother (what used to be called a patient) has NO CHOICE in the doctor or where she is sent, who reads the test results (India? Pakistan), nor most anything else.

          This is not Health Care. It is a business. Health Care should never be “Business” first. Ever. It is not the same thing, but I am not so stupid as to not understand “they” must make money, but that is in conjunction with HEALTH care as the primary driving force in union with the secondary necessity to make money for the operation.

        • VintageVNvet says:

          just ONE possibility for WV and MA,,, et alis:
          Maybe, just maybe, it’s time to change the name of the game from ”health care” to what it is in reality, “medical services delivery system” or some such…
          as far as I have seen, ever, this system has almost or totally NOTHING TO DO WITH HEALTH…
          the focus,,, THE focus is on delivery of synthetic pharmaceuticals and surgeries
          this is a direct and continuing result of the AMA taking over what HAD been ”health care” including baby delivery where they drove out the mid wives who had been delivering babies for ever,,, as well as ALL the now called ”alternative” modalities of disease prevention, many of which had been very successful for thousands of years.
          WE the PEONs can and should thank many of the MDs who put their lives on the line to reinvigorate many of the alternate methods of ”dis ease” prevention over the last few decades.

        • Anthony A. says:

          As a person that has been on Medicare for 13 years now, let me tell you that the only person that is responsible and cares about MY HEALTH IS ME. The rest of the health/insurance game is no different than a trip to an auto repair and service facility.

          Actually, my dog’s Vet is more of a caring and interested doctor with respect to the dog’s health, than anyone I have seen in a decade of medical visits.

        • Something to be said about Functional Medicine, when large insurers won’t cover it. Can’t imagine why. (sarcasm)

    • Harry Houndstooth says:

      Outstanding Post !

      In a free market system the medical office that provides the most health the most efficiently will succeed.

      All we need is a system to allow this to happen.

      Please examine the amount of money spent on health expenditures compared to the health outcomes of individual patients. It is apparent that an ounce of prevention is worth a pound of cure.

      Read “Tripping Over the Truth” by Travis Christofferson on the enormous cancer business in the United States.

      Read ” Food Fix” by Mark Hyman, M.D.

      Our future is bright.

    • Michael Gorback says:

      Telemedicine is all hat and no cattle. I did Telemedicine during the covid lockdowns. It was total BS. Good care relies upon laying on the hands.

      I was talking to a surgeon yesterday. He’s 80 years old and the founder of a large privately owned spine surgery hospital. He came to the same conclusion I have: you make more money investing in hospitals, ASC’s, labs, imaging, PT, pharmacies, etc than you do practicing medicine.

  10. OutWest says:

    Part of it is that more people are likely to be reticent to ride in an elevator at least twice a day. I used to do it periodically.

    • Jake W says:

      you think most people are still scared of covid? that hasn’t been my experience in the past couple of months. unless you’re referring to some other reason people are hesitant to ride an elevator.

    • Swamp Creature says:

      I have boycotted elevators for the past 2 years. Even for Oral surgery I walked up 5 flights of stairs to my Dentist. I have Safeway deliver my bottled water to my car in the parking lot rather than take it down via elevator. Elevators suck, If someone had covid and they just sneezed in there, you’re gonna get it too.

  11. David Hall says:

    A 46 acre mall in Florida was sold in a foreclosure auction earlier this month. Walmart is profitable. Office towers in Chicago are distressed. There are new SUV’s on car lots for about $30k; poor gas mileage. An earthquake in Japan a few days ago shut down more silicon chip production.

    • COWG says:

      David,

      Are you referring to the one in Port Charlotte…

      If so, it will be interesting to see what happens there…

      Really crappy mall, long ago outdated, but a sweet piece of property if they do it right and don’t build trash on it…

      The county government here (Charlotte County) is pretty good so I hope they won’t approve some developer crap…

    • VintageVNvet says:

      DH:
      While many folks think of FL RE is homogenous, clearly for us who have been around the flower state, it is NOT…
      So, going forward, just suggest you add some locality to any report of RE in FL…
      Even back in the 1950s, and certainly continuing these days, there is a HUGE difference, maybe 200%, between, for instance, Naples and Immokalee, not to mention between Miami and small and smaller towns in north central and pan handle…

      • David Hall says:

        The mall is in Port Charlotte, a victim of online shopping and the pandemic. Naples has million dollar homes on the SW tip of Florida. They worried about hurricanes in September. Homeowner insurance rates went up again. Immokalee is a farming community using seasonal Hispanic farm workers to pick vegetables in the autumn and the spring. Many orange groves died of citrus greening disease.

  12. phleep says:

    Legacy buildings, legacy jobs, legacy skill sets. Lots of space in a wider sense opening for change, but very costly to get the inputs converted.

  13. John H. says:

    This might sound cynical, but I’m intrigued by the thought of sub-federal governmental entities efforts to cut costs and improve operational efficiency. My experience has been that governmental units grow, but are very slow to shrink…

    Also, does anyone know if this trend is touching the US Postal System, many of whose facilities seem woefully antiquated? Wonder too how many facilities are owned outright by USPS, versus facilities owned by non-governmental landlords?

    • Sea Captain says:

      So true. Parkinson’s Law (1955) shows that beauracracies grow at 5-7% per year. This was based on observations of the British Colonial Office staffing levels increased even as the number of colonies being adminstered decreased.

  14. Michael Engel says:

    The next shoe of more contagious BA2 will stomp the office market, might send it back to a zombie status.

  15. IanCad says:

    They don’t seem to have got the message over here in the UK.
    According to Savills there are 28 million sq ft. of offices in the pipeline, and scheduled for completion by 2025, in Central London alone. According to their analysts the future seems rosy and bright.
    Buggy whips anyone?

    • Jake W says:

      what choie do they have? if they’ve already spent the money on designs, permits and red tape, and have already spent a lot on to-date construction costs, they’re probably better off burying their heads in the sand and thinking that all will be just fine (lest financing dries up), and hoping for the best

      • Marcus Aurelius says:

        Everybody building these buildings is going to make money. So build.

        Whom ever holds the note, well, that’s their problem, and most likely a Pension Plan and nobody in the system could care less about them……………

    • Anthony A. says:

      That;s the old “if we build it, they will come” theory. Good luck with that these days.

    • COWG says:

      The Russians are coming! The Russians are coming!

      Oh wait…

      The Russians are leaving! The Russians are leaving!

    • Wolf Richter says:

      IanCad,

      Yes, that’s what property developers do: they develop properties. Same thing in Houston after the oil bust (starting in 2015) put the hurt on the market and made it the worst office market in the US. And they STILL built office towers.

      But there will always be tenants for the new latest-and-greatest office towers. The thing that is happening in Houston and Dallas and elsewhere is that companies are moving out of older office towers and move into the latest and greatest office towers, and the older office towers become vacant and default on their debts. It’s the older office towers that get in trouble.

  16. Brent says:

    In NYC they recently accomplished something quite extraordinary:

    One Wall St: 1.2M sq f office space -> 566 condo units

    “Inside One Wall St.: NYC’s largest ever office-to-condo conversion”

    But it is a solid building built in 1931.Probably will not work with modern fish bowls made from structural steel & thick tinted glass (and not much else).

    • Hal says:

      Oh my. Quite posh. I can snag the cheapest one for only $1,280,000 and get roughly the same square footage as my home office. *Gulp*.

      • COWG says:

        My view of NYC…

        Bulldoze it down and try to get our $24 back…

        • Brent says:

          Well,NYC is a significant part of American History.

          By the wildest stretch of imagination I cant visualize oil refinery in Manhattan.But it is a fact – long time ago John D Rockefeller refined Pennsylvania oil there and shipped kerosene worldwide in blue Standard Oil cans.

          And if (or rather when) NYC fades into utter irrelevancy many of us will go there and start playing Midnight Cowboy or Snake Plissken all over the place 😀

        • Anthony A. says:

          Brent, there was a petroleum refinery in Queens around the very early 1900’s that made wax and lamp oil. Later on they made gasoline and it was eventually closed. I believe that the last owners of that refinery was Exxon through a few acquisitions.

        • Brent says:

          Anthony,back then oil refining was not much different from distilling alcohol.All one needed was small backyard,coal stove,big steel barrel and a condenser.

          Brutally efficient John D acquired those two-bit refiners by the dozens all over NYC and elsewhere then built something huge (20 acres in Greenpoint area of Brooklyn,NY) – along the lines of modern oil refinery seen from NJ Tpke East of Elizabeth,NJ.

          Then drove price of kerosene from $1 per gallon to 11¢ per gallon.

          If you want to look at the photo of John D masterpiece and discover what is there now google “1919 Standard Oil Company Fire”

        • Anthony A. says:

          Brent, when I was with ARCO back in the 1980’s, myself and another employee did some detailed Company research on old U.S. refineries and chemical plants to see if ARCO was somehow in the chain of title and could be held liable for historical environmental damages. What an eyeopener! It’s a good thing the oil companies had deep pockets back then. That Queens refinery was one I found actual early dated plot plans of. Crazy.

    • Julian says:

      If it was built in 1931 that is a very old office building – totally useless and unwanted today – no wonder it was converted.

      I guess it was heritage protected otherwise they would have knocked it down and built a new one to save money.

      • Bam_Man says:

        I worked in that building for several years when it was the headquarters of the Irving Trust Co. Architecturally, it is an art-deco masterpiece. On the top floor there is a huge space known as “The Red Room” with incredible, unobstructed views uptown. I got vertigo the first time up there.

  17. Mike says:

    There is more to come. My contacts in my local metro area are saying similar things, and confirming my company’s current strategy is being used by other companies. Namely, our tech workforce is mostly working from home – by choice. But, our company has decided to not reduce office space. In fact, we’ve increased our leased square footage by about 25% since the start of the Covid period. Our offices are open, and employees can return if they want to. On any given day there are 2 to 3 people on each floor (capacity somewhere around 100). Granted these are floors dedicated to tech teams – other company functions have more people in the office.

    When our RE leadership give in an accept that our tech teams are going to stay remote, they will quickly drop the class A leased space that isn’t being used. The next step down could be an acceleration as many companies realize the same thing at the same time.

  18. Spencer Bradley Hall says:

    Less office space, less work done.

    • Marcus Aurelius says:

      Not if you transfer the idea of “Social Credit” to “Work Credit”.

      Put cameras on all WFH workers stations.

      Add software to record clicks and key board strokes. (like in the old days when speed of typing was noted)

      Have AUDIO “on” at all times so those back at Headquarters can hear what is going on, who in your “office” you are talking to, any music or TV in the background, if the wife is slowing you down, if the kids want your attention, etc., and other non-productive activity.

      Check number, and quality, of emails opened, and responses. Study how much time is spent on each email.

      Record “down time” (when no activity is on the computer. This would be a good idea for automatic shut-down after 5 middles of idle, so the employee needs to log back on. That can provide management with important info.)

      With today’s beautiful applications, the employees can be monitored, followed, and observed every single minute.

      You can check out of the Office but you can never leave.

  19. phleep says:

    At the college where I teach, construction of multiple buildings is still full-tilt, while enrollments have dropped a lot.

    This semester and last, the whole place is like a ghost town. This is a big contrast from the post-GFC when enrollments spiked. I was teaching classes of 50+ students, and now it is more like 15-20 per class.

    • Hal says:

      Probably more administrative buildings for more administrators to do more administrating for improved efficiency.

    • Green Bay prof says:

      Phleep, this isn’t surprising since it takes so many years going through the planning and approval process in a university system to get a new building. A new building starting to go up now could have been initially asked for 5-10 years ago, in an era of increasing enrollments and no pandemic in sight.

    • Marcus Aurelius says:

      Other than classes realistically requiring a “Lab”, most every single college lecture can be put on line.

      Audition for, and find, the BEST Lecturer . Record that ONE lecture.

      Make it available on all Video platforms, for, like ,$1 each viewing. When millions of people watch it, for college credit, the producers and Lecturer will make millions and the other 99.999% of College Teachers can do something productive, like learn to code on the chips they built in the factory down the street.

      • OutsideTheBox says:

        MA

        Got it all figured out, eh ?

        Is that the idea you dreamed up in college ?

        • DawnsEarlyLight says:

          Actually, this sounds great, instead of paying the $50 plus per credit hour for online instruction, in addition to the normal ‘on campus’ class fee. On campus universities have a great scam going on.

        • Michael Gorback says:

          Not a dream, a solution that we dreamed up in med school. How long does it take to listen to a podcast vs read a transcription? Imagine an hour lecture compressed into 2-3 pages.

          When I was in med school (early 80s) we set up a subscription service where one student attended a lecture and wrote up notes. The notes were reviewed by the professor. These were then distributed to subscribers’ mailboxes by another team.

          It beat the hell out of 8 hours of lectures. I still automatically fall asleep when anyone says “May I have the first slide please?

          So I’d advocate a Cliff’s Notes transcript of the online lecture.

      • Wisdom Seeker says:

        They already tried the “one expert for many students” approach with textbooks. And with “videos shown in class”. And yet you don’t see most students simply sitting down with textbooks, YouTube, or even Khan Academy, and making much progress on their own.

        So my prediction is that the one-expert-for-many-students approach will fail with lectures too, and for the same reason: most humans are wired for social, interactive learning as members of a group, NOT for individual self-teaching.

    • Wisdom Seeker says:

      Demographic trough. The students will return when the next wave grows up and/or immigrates. I expect colleges and universities plan buildings for 50 year or greater lifespans.

      Also, we’re at a market peak, so there are more donors around with “edifice complexes”.

  20. COWG says:

    “ At the college where I teach, construction of multiple buildings is still full-tilt, while enrollments have dropped a lot.”

    Possibly a bond issue for the construction with low rates and the money is already there?

  21. Sheldrake says:

    Not mentioned, gasoline prices. One more reason not to commute to the city, plus bridge tolls going up. A commute from central Marin to downtown San Francisco is going to cost say gallon$ of gas plus a soon to be $9 bridge toll. Then there’s the $30+ per day parking in S.F., plus 14% city parking tax.

    As Transportation Secretary Pete Buttgig says, “just ride the bus.” Tell that to a woman with kids and groceries, or a plumber with his tools.

    Direct buslines to S.F. have been eliminated, with their funding that is extorted out of Golden Gate Bridge commuters being handed to the Smart Train bureaucracy, which like the streetcar lines a hundred years ago, is just a vehicle to pave the way for greenfields development in Sonoma County.

  22. joe2 says:

    Duh. Who didn’t think state and local regulators and other parasites would not rather “work” from home? All they do is threaten you over extortion payments.

    Disclosure: I was a part-time telephone collection agent in college. We had a series of increasingly threatening form letters but not the threat of confiscation of private property without a court hearing.

    I remember my last call: The wife said her husband was in the intensive care unit of a local hospital. I laughed, told her I had heard it all, and asked her which hospital. She told me and I called it. He was there near death and I hung up my phone and quit. I will never forget that.

    The “authorities” never quit.

  23. kitten lopez says:

    (Wolf’s stories always so cutting edge you bleed when reading.)

    is anyone else noticing that the government here in san francisco is all potempkin village at this point?

    311 is like a (soon to be outsourced?) front.

    you can’t get through to anyone in offices and they’ll admit they’re working hybrid but i don’t think anyone’s EVER in the office or held accountable.

    nor do they have to be.

    the homeless stuff is a scam and the office of short term rentals i think is just for “show.” i never got a call returned in 3 months and when i wrote an email asking “who do i have to blow to get a return call” i got a message from a guy who sounded like he was pulling the phone away whenever he’d say his return number.

    2 more weeks of that i gave up.

    i now completely think government is there for desk jobs. the only ones who’ve done anything these past two years are the trash men and the plumbers who’ve been called out like when the short term tenants flooded our garage with feces because they flushed too many wipes and paper towels down the system when they cleaned up to leave.

    i actually think government is all about making more homeless now that there is an actual burgeoning blossoming booming homeless industrial complex to rival the existing prison industrial one. we make more money that way once our servitude is tapped out and we can’t uber people around or run them around on our backs.

    • Wolf Richter says:

      kitten lopez,
      For real frustration and exasperation, try calling Comcast (where we used to get broadband), which I did over a year ago. The chat bot did not understand what I needed and wanted, and refused to put me through to a human. I wasted 10 minutes running in circles with a completely idiotic chat bot. In the end, I wanted to throw my phone up into the air and shoot it with a double-barrel 10-gauge goose gun. THAT’s the future. Heinous idiotic chat bots whose algos were written in India.

      I quit Comcast as soon as I had an alternative lined up with fiber to the house. Works great, real people.

      Comcast is infinitely worse than ANY city administration. Nothing comes even close. The executives of Hell should go to school at Comcast.

      • kitten lopez says:

        Wolf i’m LAUGHING because that’s what James found BOTH TIMES he called the IRS in the past couple of weeks to find out what happened to the $1k+ refund check they said they’d sent months ago!

        after 10 minutes or so of hoop jumping, the bot apologized for them being too busy to take his call and hung up on him.

        and he said the SAME EXACT thing about wanting to shoot the phone.

        x

        • Wolf Richter says:

          Shooting phones is a guy thing :-]

        • Hargraves says:

          We stopped paying property tax on our building because we could never get anyone from the city to answer the phone. We return the bill with “funds withheld until workers at city hall.” The money is in an escrow account with the city as a named payee along with our family.

          Still no no a peep two years later.
          No taxation without representation

          Why pay taxes? The government can just create the money through MMT.

        • Michael Gorback says:

          Let’s not forget the joy of shooting defunct laptops, desktops, monitors, etc that have planned obsolescence.

          Best way to erase a hard drive too.

  24. Some Guy says:

    In my neck of the woods, land is at a premium, and there are a number of 1970’s and 1980’s era office buildings that are fairly sprawl-y (2, maybe 3 stories) with big parking lots surrounding them in relatively high demand areas.

    I guess a part of re-balancing the market will be developers simply knocking these down and replacing them with residential construction instead.

    With a shortage of places for people to live, cities (enough of them anyway) will be happy to go along and rezone as needed. That way they can say they are doing their part of build new housing, without touching sacred SFH neighbourhoods.

    Office towers are more difficult to manage, but I guess demolishing a bunch of low rise stuff will concentrate the remaining demand into the office towers and that will support the rents somewhat.

  25. patrick helmick says:

    WFH observation – anecdotal evidence – we live in a neighborhood of mostly people younger than us – I spend a significant amount time every day walking the neighborhood chatting them up – I see them everywhere and at all times of day – I usually ask them ” you on the clock today?” as they sip their coffee/ walk the dog- or child almost always the answer is “YES” or ‘Hell Yes!”

    • Wolf Richter says:

      They’re solving problems while walking around. Exercise clears your mind and allows you to get a fresh point of view on an issue. You might snicker, but it works for some people, including me.

    • Anthony A. says:

      Our local golf courses are full of WFH folks around here. I guess they work at night.

    • Seen it all before, Bob says:

      I used to walk to the break room for food to think out a problem.

      Now I walk my happy dog around the block.

      Problem solved.

  26. Gabby Cat says:

    Part of this is due to the WEF 2030 initiative in moving a lot of people to smart cities. I work in a very large healthcare supplier. They just moved most employees to WFH permanently. This is to become a green organization with smaller footprint by providing flexible work life balance for co-workers. They are selling much of their campus. So, what does the WEF want with these buildings. If I remember the 4th IR will lead to
    most people living in high rises like the campus being sold. The 4IR states you will own nothing and be happy. Could we see employee living coming out of these buildings soon? Rent free and perks?

    • Augustus Frost says:

      There will be no free rent or perks unless it’s in company town equivalent housing which will hardly be luxury. The end game is a global socialist totalitarian super state, whether they admit it or not.

  27. MarkinSF says:

    Could see this a mile away here in San Francisco. So many vacant storefronts and the foot traffic is akin to what you’d see on the weekends here in the financial district. Just wondering how this is anything but a massive deflation event. How are lessees ever going to meet their monthly nut? And what can lessors do about it?

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