AP- Though sentiment around the
office market has sunk drastically, some economists believe that the fears
of an urban 'doom loop' might be too extreme.
Although the office market has faced record-high vacancies and
falling values, experts on a panel at
the National Association for Business Economics conference in
Washington, D.C., this week said there are several signs that major
cities can avoid financial crisis, Market Watch reported.
“Intellectually, based on the data, we’ve
concluded no doom loop fears here. The industry can make its way through,” Moody’s Analytics Deputy Chief Economist Cristian
deRitis said at the event, according to Market Watch. “There is
quite a bit of capital in the system. The distribution of CRE loans is not just
concentrated in banks."
Erin Patterson, global co-head of
research and strategy for real estate at Manulife Investment Management,
said there are other financing options out there that are helping
and banks have been open to working with borrowers to create value for office
buildings.
“That’s an escape hatch from this doom
loop,” Patterson said at the event, according to Market Watch.
The term "doom loop" comes from the vicious cycle that occurs when
people begin to leave cities, which leads businesses to close and cities to
lose tax revenue. This, in turn, leads these cities to cut services and raise
taxes further driving people out.
Other economists think this
possibility should be taken more seriously, as it could lead to devastating
impacts on major metro economies.
As the remote work trend continues,
people aren't coming into downtown offices at the same levels as they did
pre-pandemic, which has caused office values to drop and led to economic
pain in many major cities.
"These commercial property tax
revenues are an important component of the budget of local governments, which
means less money for police departments, trash collection and some people are
going to decide that the quality of life has deteriorated too much and they
want out," Columbia Business School professor Stijn Van
Nieuwerburgh said last month on 60 Minutes.
Van Nieuwerburgh added that the top 10
U.S. cities have lost over 2 million residents in the last three years,
taking with them the tax revenue that these cities rely on.
Boston is projected to face a $1.5B
revenue shortfall in the next five years due to declining office values, a new report found this week, while D.C. has seen a 'shocking' plunge in office values and is expected to lose hundreds of millions in tax
revenues.
Weitz Take:
This article is pretty funny. The title and start give an ‘opinion’ that things
may turn out fine, and then goes on to cite data that would objectively lead to
a very different conclusion. In an effort to be positive, I’ll say that the
next few years will vary market to market so to paint a broad stroke of doom
and gloom would be irrational. I think there are some smaller submarkets that
could perform well that have untapped potential as of now.
For instance,
my area of Snohomish County, WA, while I don’t believe it will be immune from
all negativity has considerable room to grow given current zoning opportunities
as well as companies looking for more affordable space than what they could
find in areas of Seattle, Bellevue, Etc.
For more
information on Snohomish County Commercial Real Estate, consider contacting a
Snohomish County Commercial Real Estate broker.
Scott@WeitzCommercial.com
t: (206) 306-4034
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