I wrote an article titled AVAILABLE 15 months ago about the increasing number of Space Available signs in my supposedly upscale Montgomery County, PA.
We supposedly have the same number of people employed today as we did in the fourth quarter of 2007. This is 7 million more than were employed in late 2010.
If this is a real economic recovery, why is there still 68.2 million square feet less occupied office space than there was in 2007? Could it be because the shit jobs added during the Obama “recovery” aren’t well paying office jobs, but crappy retail, fast food, and “self employment” jobs?
My suspicions are confirmed by the chart below. The space available has grown by 120.7 million square feet since 2007, and continues to grow. Can you believe developers continue to build new office space, when this much is available? Can you believe office rent prices have risen by 7.2% since 2010? How can this be?
Look no further than your friends at the Federal Reserve. Zero interest rates allow bankrupt developers to pretend they are solvent. The Fed has allowed banks to “restructure” developer loans, pretending they will eventually make their interest and principle payment with the rent they are pretending to receive from phantom tenants. The extremely low interest rates has resulted in the mal-investment of funds into building more office space. Easy money and accounting fraud can do wonders, for awhile. There is no recovery. There are no new tenants. The space available signs continue to proliferate. How long can negative cash flow be sustained by developers as businesses shut down, while retailers and restaurants go dark?
And now for the really bad news. REIS is a property company skewing the data as positive as possible. Those charts are only for the 79 largest metropolitan areas in the country. And they are only for Class A buildings. If you were to include Class B and Class C buildings in all the markets in the U.S. you would find the true vacancy rate to be in excess of 30%.
As you drive around your neck of the woods, play a little game. Count the number of Space Available signs along your route and calculate whether the true vacancy rate is closer to 17% or 30%.
Extend and Pretend is coming to an End.