Terrific - and terrifying - article from The Atlantic's "Work In Progress" blog by Dror Poleg, author of the book Rethinking Real Estate: the next crisis will start with empty office buildings.
The commercial real estate market - once so stable it was considered a widows and orphans investment - is changing radically. 25% of commercial real estate in large cities is empty, and that only counts the space whose leases have expired; it doesn't count leased space that isn't occupied, and is unlikely to be occupied again when the lease expires. Many real estate firms are "handing the keys to the bank" by defaulting on their loans.
I've been thinking about this ever since the Spousal Unit and I attended the World Science Fiction Convention in Chicago in 2022, post pandemic. It was held downtown at the Hyatt Regency on Wacker Driver right next to the huge Illinois Center complex.
We've attended conventions in this very same venue many times. I was shocked to see how the pandemic and the work at home movement had changed it. Illinois Center is an office building complex that sits atop a vast underground environment linking many such complexes. When we've been there in the past, on working days, this environment was full of retail, food, and service shops, and people bustling through it. This last time, it was almost empty, with a lot of empty storefronts.
Standing in our hotel room and peering at the adjacent office building, on a working day, the I could see the window office space on several floors were empty; I saw one single office worker, looking at what appeared to be large blueprints or schematics.
The commercial real estate market underpins a lot of city tax revenue and investments including pension plans. The clock is ticking: according to Poleg, a third of all office leases expire by 2026.
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