| | | | For a while now, my fellow trader, Jeffry Turnmire, has been warning of a looming commercial real estate bust, mostly due to changing work habits which have left banks with outstanding loans on buildings that can’t be filled now.
So when I read an article on office vacancies having recently broken the 20% mark for the first time ever, it got my attention.
Talk of the office and its pandemic-powered apocalypse might have died down, but the sector’s troubles haven’t. If anything, four years after the pandemic’s onset, office vacancies are growing.
I don’t follow real estate all that closely, but to me, this doesn't sound like a recent problem.
If you look at most of the vacancies, they are in the old buildings built back in the 60’s, 70’s, and 80’s. You could even argue that it extends to buildings built in the 90’s.
Back then, they were building office buildings with big offices, and banks and S&L’s (Savings & Loan associations) were financing buildings like crazy.
But companies were discovering they didn’t need that much space, so they started building smaller, more modern offices. This trend has been developing for decades, and the pandemic just accelerated it significantly, but it's been ongoing for quite some time.
The rising vacancy rates aren’t just a product of the pandemic but a continuation of a trend that’s been unfolding over several decades. The shift towards more efficient and smaller office spaces began long before COVID-19 and has been driven by evolving business needs and advancements in technology.
The pandemic acted as a catalyst, accelerating the existing trend as remote work became possible for a large segment of the workforce and therefore became more widely accepted.
Older office buildings, which used to be a sign of corporate success, are now pretty much outdated and can't meet the needs of modern businesses and employees who prefer flexible work setups.
Plus, the cost of maintaining and repurposing these old buildings has become a big problem for property owners and banks. The building boom from way back has left us with way more office space then we need right now.
To wrap things up, while the pandemic has certainly added to the current commercial real estate issues, it’s important to see the long-term trends.
Recognizing these patterns can help us make smarter decisions as traders and investors, especially when it comes to predicting how these changes might affect the overall economy. | | | | |
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