V-Shaped Narrative Dies as Commercial Real Estate Bust Accelerates
The comments below are an edited and abridged synopsis of an article by Tyler Durden
The last week of June is when investors will lose hope for a V-shaped economic recovery, as confirmed Covid-19 cases are exponentially rising in Texas, Florida and California, and the Tri-State area imposed quarantine restrictions on travelers. Reopening in some of these states has also been delayed, as retailers close for a second time.
Nevertheless, many on Wall Street are madly buying stocks, because they believe the Fed’s money-printing will lift the economy out of one of the worst downturns since the 1930s.
With a euphoric period behind us (the Fed’s balance sheet has contracted over the last several weeks and virus cases across the country are soaring), we now turn our attention to the commercial real estate bust.
A new report details how the Manhattan commercial real estate industry could be headed for a prolonged downturn if there’s no V-shaped recovery in the economy.
Manhattan’s office rents are likely headed to their lowest levels since 2012 if the economy doesn’t have a speedy recovery. That means rents could drop by 26% to about $62.47 a square foot. The office market in New York is headed for a serious bust, with recovery years away.
And it’s not just the office market that is in trouble; one-third of hotels in New York could go bankrupt.
A speedy recovery or not, the trend in corporate America is to work from home and companies have found ways to implement remote access for employees. This trend will only gain momentum.
The cracks in commercial real estate have already emerged. In early June, there was a massive jump in CMBS delinquencies, suggesting that the bust has only begun.