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Is Commercial Real Estate in Trouble?

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Economic Tidal Wave

COMMENT: Dear Marty,
I am located in the intermountain west where many national tech companies are re-locating. We are referred to as “Silicon Slopes” of the west. Since Covid-19 came to light and we have essentially a “stay at home” and work policy here in Utah, all the new beautiful office buildings packed with tech companies are now empty. I was joking with some of my co-workers that when the dust settles many of these companies may realize that they were nearly as efficient/ productive without having their employees all in the same room. I believe that the fallout to commercial real estate may be an unintended by-product that will come from all of this. In speaking with a couple of different business owners, their leases come up for renewal in August and both have already said they don’t need the space anymore. I just find it interesting that this virus is the gift that keeps on giving with so many unintended casualties. Thanks for keeping it real.

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REPLY: Yes, commercial real estate is crashing. This may be an area of unexpected consequences. If they keep raising taxes on businesses, they will simply convert employees to contracted independents. That will eliminate the employer matching taxes. These people have not realized the damage they have done to the economy. This is not going to be back to normal. Many small businesses that were finding it hard to compete with online businesses will not reopen.

We do see a sharp spike low during the 2nd quarter 2020. That has been our target for an initial low since our forecast back in 2015. We will be looking at updating our real estate forecasts given the recent events.