In New York and London, owners of office towers are walking away from their debt rather than pouring good money after bad. The landlords of downtown San Francisco’s largest mall have abandoned it. A new Hong Kong skyscraper is only a quarter leased. The rot inside commercial real estate is like a dark seam running through the global economy. Even as stock markets rally and investors are hopeful that the fastest interest-rate increases in a generation will ebb, the trouble in property is set to play out for years.

In this episode of The Higher Standard, Chris and Saied examine this news and determine the effect it will have on the economy as a whole.

They discuss a prediction from Chapman University economists, calling for a mild national recession in the second half of the year, driving down the coastal community's year-end local median sales price to $885,000 — an 11 percent drop from $993,000 in June and 19 percent off the $1.1 million high of spring 2022.

Chris and Saied look at announcements from several big companies, including Apple, JPMorgan Chase, and Amazon, who are attempting new pushes to “return to office” after previous attempts foundered. However, the pandemic has showed that many jobs can be done remotely, while a tight labor market and successful pandemic policy has given employees the confidence to push for better working conditions.

They also offer some thoughts on data from Moody’s Investors Service, which indicates that corporate defaults rose last month, with 41 in the U.S. so far this year. That’s more than double the same period last year.

Join Chris and Saied for this fascinating and informative conversation.

Enjoy!

What You’ll Learn in this Show:

• Why office real estate values are heading for a sharp crash and likely won't recover by 2040.
• Why average US office vacancies currently sit around 50%.  
• The Case-Shiller index shows the first year-over-year decline in 11 years.
• And so much more...

Resources:

"Cinemark closing theater complex at Westfield" (NBC via Instagram)

"OC home prices expected to fall by 11% as recession looms" (TheRealDeal via Instagram)

"Silicon Valley vacancy jumps to 17% as tech firms shed floors" (TheRealDeal via Instagram)

"Return to office? How COVID-19 and remote work reshaped the economy" (Princeton University Press)

"Corporate bankruptcies and defaults are surging – here’s why" (CNBC)

"The World’s Empty Office Buildings Have Become a Debt Time Bomb" (Bloomberg)

"U.S. new home sales jump in May; median house price falls" (Reuters)

"U.S. Home Prices Posted First Annual Decline Since 2012 in April" (The Wall Street Journal)

"Airbnb CEO says this is ‘loneliest time in human history’ and we need to ‘rebuild physical community’" (Fortune)

"The office real estate crash will be so sharp and deep that Capital Economics thinks office values are unlikely to recover by 2040" (Fortune)

"The Debt Crisis Looming in Commercial Real Estate" (Bloomberg)