The city "doom loop"

 

The New York Post claims that "Work from home and empty offices leading to ‘doom loop’ for NYC".

Empty office buildings have set New York on an “urban doom loop” that will destroy the quality of life in the city and drive residents out.

That is the conclusion of a team of economists from NYU Stern Business School, Columbia Business School and the National Bureau of Economic Research.

Many employees who worked from home during the pandemic haven’t returned — at least not full time. In 2020, office occupancy fell from nearly 90% to 10%. But it’s only bounced back to 48.4% in New York.

In response, fewer companies are renewing their leases, which lowers the value of office buildings.

The number of newly signed lease, meanwhile, fell from 285.4 million feet per year before the pandemic to only 62.4 million feet per year in the same period after.

The researchers developed a valuation model that tells us how much these properties will be worth in six years’ time — a level of destruction that would make the Four Horsemen blush.

What does this mean for office property values overall? They get absolutely nuked.

The economists estimate the value of office stock in New York City has fallen by around $69.6 billion by the end of 2022. Owners of commercial property can only play ostrich and bury their heads in the sand for so long. At some point they will have to eat these losses.

New York isn’t the only metropolis that will experience the disaster. The economists expect the San Francisco market to lose around $32.7 billion in value, while Charlotte will lose $5.1 billion. This would be a decline in office values of 61.6% for San Francisco and 33.7% for Charlotte even if work-from-home gradually disappears.

Looking down the list, all urban America looks like it is going deeply in the red. The authors calculate that nationwide the United States will see a $506.3 billion decline in commercial property values. That puts losses at just over half a trillion dollars!

The economists point out that cities rely on property-tax revenues for much of their budget. New York City’s budget is currently around $107 billion, and around $35 billion of that comes from property. San Francisco’s much smaller budget of $6.2 billion also relies heavily on real estate, with around $2 billion coming from property taxes.

. . .

Services are cut. Taxes across the board go up. And more people flee as the city becomes even more uninviting.

New York City, together with many other urban centers, experiences Detroitification.

There's more at the link.

Working from home is no panacea, either.  I've been doing it for years as a writer.  It's hard to force yourself to work a normal office routine, producing output and earning a living.  Many office staff now working from home are far less productive than they were in the office, simply because there's nobody directly supervising them.  They're taking advantage of that to use a lot of time to take care of domestic chores, children, and so on.  There's a growing number of programs that offer to automatically move your mouse cursor on your computer screen every so often, or enter random keystrokes, to fool monitoring programs into thinking that you're working, when in fact you're playing with your child or feeding your cat.  I hear from some correspondents that the quality of output from many home workers is measurably lower than they produced when working at the office, but there doesn't seem to be anything their employers can do about it - because if they fire them and hire harder workers, it doesn't take long for the latter to slack off just as much as the former.

I don't know the answer to this conundrum, but I'm pretty sure we haven't found it yet.

Peter