How the 'urban doom loop' could pose the next economic threat

[mahatmakanejeeves]

ECONOMY

How the ‘urban doom loop’ could pose the next economic threat

A commercial real estate apocalypse — especially in midsize cities — could spiral into the broader economy

By Rachel Siegel
August 28, 2023 at 6:00 a.m. EDT



Atlanta faces an economic backslide as a commercial real estate crisis looms across several cities. (Alyssa Pointer/Bloomberg News)

{There's no date on the picture. It might be three years old, from the looks of it.}

In Indianapolis, the technology giant Salesforce is paring back a quarter of its office space in the tallest building in Indiana, where it has been a key tenant for the past six years. In Atlanta, the private investment giant Starwood Capital defaulted on a $212 million mortgage on a 29-story office tower. And in Baltimore, a landmark building sold for $24 million last month, roughly $42 million less than it fetched in 2015.

All across the country, downtowns, office spaces and shopping centers are at risk of becoming ground zero for a new economic hazard: the urban doom loop. The fear is that a commercial real estate apocalypse could spiral out and slow commerce, wrecking local tax revenue in the process. Ever since the pandemic drove a boom in remote work, hubs such as New York and San Francisco have drawn attention for their empty offices in previously bustling skyscrapers. But many economists are even more worried about midsize cities that have fewer ways to offset the blow when a major company slashes office space, the sale price of a building craters, or a downtown turns into a ghost town.

[ Breweries, farms, spas? To fill empty offices, downtowns get creative. ]

The worst-case scenario would go like this: With more people working from home, companies from Milwaukee to Memphis are rethinking their leases or pulling out of them altogether. That drives vacancy rates up and makes it harder for landlords to attract new tenants or sell buildings for a healthy price.


Then property owners might struggle to pay off their mortgages or clear other debt. Business districts would dry up, stifling tax revenue from commercial properties or employee wages. Shoppers and tourists would have fewer reasons to venture downtown to eat or shop, choking off spending and forcing layoffs at restaurants and retail stores.

[ Workers wanting to stay remote prompts an office real estate crisis ]

“Once those offices are empty, there are few alternatives and not a lot of life after hours,” said Stijn Van Nieuwerburgh, a professor of real estate and finance at Columbia University’s Graduate School of Business who is one of the authors of a paper that coined the “urban doom loop” phrase. Midsize cities “have a much bigger chasm to cross than what New York City has to go through. The situation is worse in those places with so little else in place.” He added, “It is a train wreck in slow motion.”

Economists caution that such a train wreck is not guaranteed, and the spiral has not kicked into gear anywhere yet. There are a few reasons: Many cities are still leaning on historic levels of state and local stimulus aid from the 2021 American Rescue Plan, and those funds may not run out for another year or two. A large share of the outstanding business and mortgage loans are also not due for a few more years. Plus, the economy continues to defy the odds, dampening concerns that widespread layoffs or drops in consumer spending could trigger this dangerous loop.

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By Rachel Siegel
Rachel Siegel is an economics reporter covering the Federal Reserve. She previously covered breaking news for the Post's financial section and local politics for the Post's Metro desk. Before joining the Post in June 2017, Rachel contributed to The Marshall Project and The Dallas Morning News. Twitter https://twitter.com/rachsieg

[bucolic_frolic]

1. Retail apocalypse underway

Malls closing. Strip malls half-empty. I see retailers move 3 doors down, or across town, into a recent vacancy that couldn't support the last big box implosion. They seem to be aggregating into space with the best transportation access. Strip malls in congested areas with light parking are going under. It takes years, then they demolish the whole thing. It's sad, and wasteful.

I can't find what I want in stores anyway. It's better to order online, even if for in-store pickup because they don't put the good stuff on the shelves. They put the high price, hard to move stuff.

We are so doomed.

[underpants]

2. We're bound to bail these out somehow so why not use them as shelters

I know I know, I’m a commie lib who wants people to eat, have shelter, and respect.