What I’m Reading
Deflating: A new study by data firm VTS, which tracks tens of thousands of negotiations across the U.S. between landlords and tenants found that big companies are sticking with their city-center office buildings. However, they are also cutting back on space, likely driving down rent for years to come as a result of excess supply.
The terms under negotiation show landlords are offering long-term leases of four and more years at discounts up to 13% below rent rates reached in the first quarter of 2020 when factoring in concessions like periods of free rent, according to VTS. Companies are also seeking on average about 10% less space than they were looking for in the first quarter of 2020.
From the beginning of the COVID outbreak, this was the true risk for office. It wasn’t that companies would abandon their offices altogether but rather that they would reduce their space needs and perhaps focus on more flexible terms. IMO, the Green Street forecast of demand reduction of 10-15% over the next decade or so still appears to be the baseline. Wall Street Journal
Vaporized: A year ago, distressed debt investors were preparing to pounce on an anticipated $1 trillion in troubled debt. They raised hundreds of billions to capitalize on the opportunity. However, the distress has not materialized thanks to federal rescue packages and low interest rates, leaving investors forced to either return capital or look to emerging markets for opportunities. Perhaps the biggest irony here is that large PE shops continue to raise capital to invest in distress that simply isn’t there. In the past couple of weeks alone, Ares and Cerberus have raised around $4.3 billion combined. Bloomberg
Good Riddance: California announced that it is reopening on June 15th and scrapping its controversial COVID colored tier system. It only took a gubernatorial recall and untold economic destruction while achieving mixed (at best) results. I wonder what the teachers union had to say about this. San Francisco Chronicle
The Great Leap Forward: Consumers spent $900 billion more online in 2020 versus the prior 2-year trend. Grocery and discount stores are likely to see the most dramatic and lasting shift to e-commerce beyond the pandemic, especially since online sales drove a relatively small portion of their overall sales before the crisis, the report said. CNBC
Outward Bound: For the first time in the seven-year history of CBRE’s annual Americas Investor Intentions Survey, large investors ($50B+ AUM) are more interested in secondary markets than primary markets. CBRE
Imperfect Measure: If inflation picks up, the difficulty in determining what is transitory versus secular can lead to policy errors. The Capital Spectator
Chart of the Day
This is a problem.
Source: John Burns Real Estate Consulting
WTF
The Memes Write Themselves: God bless the editor at The Guardian responsible for this headline: New York plans to erect Empire State Building-sized Penn 15 skyscraper The Guardian
The Heist: A couple was arrested and charged with fraudulently collecting $5.8 million in COVID-19 relief money and using it to buy a luxury car, Louis Vuitton merchandise, and more, then flaunting it on Facebook because Florida. Fox 35 Orlando
Basis Points – A candid look at the economy, real estate, and other things sometimes related.
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