Authored by Charles Hugh Smith via OfTwoMinds blog,
Combine sky-high commercial rents in homogenized, gentrified urban areas and sharp declines in the incomes of the limited populace who can afford gentrified urban areas and what do you get?
A number of macro dynamics have set up gentrified urban America for a big fall in the coming recession. What does gentrified mean? Gentrified means only the gentry (top 10%) can afford to enjoy the urban amenities as commercial rents and the cost of doing business in desirable urban areas have skyrocketed along with residential rents.
As a result, low-margin businesses have been squeezed out of desirable urban neighborhoods along with lower-income residents. The top 10% is the only demographic who can afford to live in gentrified urban America.
As noted in What’s Really Happening to Retail?, Only Amazon-proof businesses can now survive in brick and mortar. And that quickly boils down to high-cost, high-margin food and drinks–cafes, bars, restaurants– and mega-corporate chains: Walgreens, Starbucks, Chipotle, etc. and smaller chains that cater to the needs/obsessions of the top 10%: fitness centers, etc.
On a per capita basis, America is grossly over-supplied with commercial real estate. But within the desirable urban cores, commercial rents have soared due to the relative scarcity of commercial space. As a result, landlords and property managers are asking exorbitant rents, and many are leaving spaces empty rather than rent them for less.
The net result is desirable urban zones are being homogenized: niche retailers and other small service providers can no longer afford the rents (unless they also own the building) and the only businesses that can afford the nosebleed rents are high-margin food-beverage establishments or corporate chains.
The irony is two-fold: the very diversity and novelty that attracted the top 10% is being eroded, while the reliance on free-spending young wage earners in the top 10% (or even top 5% in pricey urban zones) makes such gentrified urban areas extremely vulnerable to any downturn that trims the population, salaries and bonuses of the top 10%.
Drive out all the small businesses that the top 50% can afford and all that’s left is high-cost businesses only the top 5% can afford.
Even worse, the vast majority of these high-cost businesses are discretionary:nobody really needs a $5 coffee, $5 bagel, fitness center membership, etc., and buying a couple rolls of toilet paper and some instant noodles at Walgreens ins’t going to generate the per-square-foot sales Walgreens needs to keep the high-rent store in a gentrified urban neighborhood open.
Corporations have been able to pay high salaries and bonuses to top employees because sales and profits have continued marching higher for a decade. Once a recession cuts revenues and profits, corporate managers have no choice but to slash expenses.
All the low hanging expenses were cut a decade ago–fixed overhead, janitorial services, automation of lower-skilled workers, etc.
All that’s left to slash and burn is the top 10%. First, cut bonuses. Next, move the software-eats-the-world automation up the food chain, and outsource whatever’s still soaking up money in corporate HQ.
In effect, the top 10% is ripe for the disruptions of globalization and automation that have already laid waste to the bottom 90%. Here’s one way this works: Human Resources lays off 20% of the workforce making $100,000 or more, and then hires back some percentage at $75,000 because they know everyone else is laying off the same talent.
It’s called over-supply / over-capacity. There’s too many people with PhDs, Masters degrees, JDs, 10 years experience and so on, and not enough slots for everyone who’s overqualified.
And don’t forget, global corporations can’t afford loyalty to anyone or anything except their major shareholders. If someone in Singapore can do a job for half of what it costs in Silicon Valley, NYC, Austin or Atlanta, bye-bye job in high-cost USA.
How much of a decline in sales will it take to sink high-fixed costs cafes, bistros, fitness centers, etc.? I’m guessing a 15% decline in revenues will sink an outsized number of these enterprises, as their fixed costs won’t drop by much while their operating margins will drop into the red (losses).
Greed is sticky, meaning commercial landlords won’t drop their rents enough to be meaningful until bankruptcy is staring them in the face, and by then it’s too late to find any tenants.
Charts: let’s start with commercial space per capita: the US has way too much:
The Creative Class is one way of describing the top 10% of wage earners:
The top 10% now take home as much as the bottom 90%:
Incomes have only risen for the top 5% and the next 15%:
Combine sky-high commercial rents in homogenized, gentrified urban areas and sharp declines in the incomes of the limited populace who can afford gentrified urban areas and what do you get? A tidal wave of small businesses closing and very few takers for all that empty commercial space.
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I’m hoping the arrogant, egotistical, holier-than-thou, coastal gentry receive the harshest economic lesson, one for the ages, when the Greater Depression arrives.
See just how really close Gramercy Park is to Brownsville or Bel-Aire to Compton.
Laissez eux mangez merde. (Salut nos amis Les Gilets Jaunes)
+100,whatever the franch words means–
Roughly translated… Let them eat shit. Salute our friends Yellow vests.
“The creative class is one way to describe the top 10% of wage earners” I would describe them quite differently. Unlike most people here, I live in a densely urban area. We aren’t talking about business people, we’re talking about people living on a high paycheck. Most of them work in one of the grifter industries. Government, finance, education, medical, law. And who do they grift off of, beside the taxpayer? The uneducated immigrant minorities that we continue to import and pack into the cities. Miami or Fort Lauderdale doesn’t have some industry that’s attracting the best and brightest. What we do have is a major hotspot for government transfer payments. Take a large population of low IQ people, pack them in a dense area, and feed them boatloads of government funding, and the parasites who extract that money from them have a field day. To call the people that service that kind of situation “the creative class” makes me sick to my stomach. They are people working for grifters. And at a certain point, you stop being a good person working for a scummy operation, and just become scum yourself
Bingo bango.
“Creative class,” you say? I call them the “Rent-seeker class.”
Heed the warning. Position yourselves accordingly. Stockpile resources. Buckle up. Turbulence, dead ahead.
Not to mention the broke thug folks showing up in these neighborhoods when SHTF. So where are all those hi-tech jobs everyone yammered about? While trucking the country I watched for years as jobs left in a steady trickle. At least 10 times a month someone would talk of factories shutting down and going overseas. I kept thinking about what jobs would replace all of the ones leaving. As far as I can see, very few. So many people in so much debt with no savings. It’s going to be bad.
https://ultimatemoviefanatic.tumblr.com/post/97604607686/best-snl-skit-ever-lmfao
What?!!! CHS just used the word GREED?!!! What?!!!
We’ll see just how creative the 10% Metro-sexual Suits are when the SHTF and the angry Welfare Maggots go through their gated neighborhoods like a Texas tornado and then sell their women.
It seems most of these articles I look at give us numbers from the past. I’m sure the shit has hit the fan, we can only wait for the return of the shit or get prepared. Be prepared to be out of the city.
“UK-based global bank Standard Chartered predicted in a report published this week that Russia will overtake Germany as the world’s fifth largest economy, possibly as early as next year,”
That’s from a Russia hating British bank! The IMF and other global banks have issued similar rosy forecasts.
Unit6969 can go fuck himself.
Germany is the 4th largest economy after USA, China, Japan. I assume Standard Chartered is using Purchasing Power Parity to rank Russia and not exchange rates. That’s fair enough by some measures as I’m sure an apartment in Volgagrad can be had for less than one in Dallas or Munich but you are in Volgagrad and not Dallas or Munich. PPP works for services too up to a point. Getting a cavity filled in Russia or Brazil might be cheaper than the US but if you have a serious condition getting treated at UCSF or Sloane Kettering might just save your life while you die if you are in Brazil or Russia.
Trump, banks, and even ‘Murika might not survive Hurricane Waters. I’m not kidding.
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Also on the committee is socialist Alexandria Ocasio-Cortez, “motherf ucker”shouting Rashida Tlaib of Michigan and Liz Warren acolyte Katie Porter of California.
Waters has it in for banks. She blames them for the 2 million loans to low-income borrowers that went sour more than a decade ago.
Last week she said —-> “I have not forgotten. You foreclosed on our houses . . . had us sign on the line for junk and for mess that we could not afford. I’m going to do to you what you did to us.”
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Waters is also gunning for HUD Secretary Ben Carson saying she intended to “take his ass apart.” She’s irate that he scrapped a program started by Prez Oreo to strong-arm affluent suburbs into building affordable housing and offering low-income job opportunities smack in the middle of their fanciest neighborhoods. The rule said that if low-income minorities want to move into a town but can’t afford it, the town must provide “adequate support to make their choice viable.” …. in other words, mandatory diversity.
———
Corporate America is also in Waters’ crosshairs. Waters said that minorities and women are unfairly locked out of executive positions. On a recent visit to Silicon Valley, where she complained about how few black employees were being hired, she said: “I’m not urging. I’m not encouraging. I’m about to hit some people across the head with a hammer.” … …. in other words, mandatory quotas at the “C”-level and in boardrooms.
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Of course, she has Trump her her crosshairs —- “it’s time to go after him . . . impeachment is about whatever the Congress says it is.”
The first thing to pop into my mind was “who is watching the watchers?”
Even Mad Maxine Waters is not above the Evil Fuckers’ Iron Law of “Do Not Fuck With The Money”.
I call BS on this, Maxine. You are not finding any blacks in Silicon Valley? Try coming by in the middle of the night and watching LeRoy and his crew who work the night shift refilling paper towel dispensers in the restrooms and mopping floors. I am sure Maxine you will find many blacks working in the tech field. And a few Hispanics, too.
Maxine is smart enough and mean enough to put a hurting on the banks if she would stay focused. Her problem is she can’t or won’t. Look for her spite against the Donald to take over and her whole committee just being anti-Trump 100%. I guarantee the banks will absolutely love that.
After all we ain’t talking about a Sun-Tsu or Machiavelli here. There is definitely a lack of self control which will be her downfall. Trump and the bankers will know how to trigger her.
Urban living is the cause of a good fifty percent of human problems. Everything about it is artificial. It cannot feed itself, it hasn’t adequate space to get rid of it’s refuse, it inures humans to the normal interactions between one another, and it’s costs to sustain itself are always much higher than rural enclaves. And it’s a magnet for the most damaged people; criminals, madmen, homeless, etc.
But maybe I’m wrong, maybe this time it really will be different.
And we all know what political ideology causes the other 50% of the problems.
Some how I told you so just isn’t going to cut it LMAO !
When the industry was pillaged and plundered raped and finally murdered all I heard is we are a service and hi tech economy now , yet the tax base continues to shrink . You do not keep a world power rolling as working people scurry about cleaning each other’s houses and cutting each other’s lawns .
Then we have the circle jerk of Wall Street to K-Street to Capitol Street pillaging the pension plans as unsecured liability see Mitt Romeny and Bain Capital also the WR Grace method of bankruptcy wow those high rolling real mother fuckers turned ripping off the little guy into a legal gymnastic art form !
So here we are even the low middle and high 6 figure salaries are finding themselves on the chopping block . Now who could have ever seen this coming ??????
As I said in the beginning of President Trumps Drive to the White House , ok count me all in on MAKE AMERICA GREAT AGAIN . “BUT” with what with who and how soon cause the preverbal fat lady is warming up …!
We have shut down steel mills , shipyards and every industrial manufacturing and assymbely outfit and the few left are hanging by either a thread or deficit spending by government .
We as a nation cannot even properly maintain our navy ships with dry dock space for parts and repairs . Unless we want to wait months and buy parts from , you guessed it CHINA !
Nice going there circle jerk ! Especially you assholes in Washington who for the last 50 years scurried about like cats covering up your own shit . Be warned don’t lift up a rock or turn a light on in a dark room in DC , all you will hear is the pitter patter of rats mice and roaches running for the shadows !
While they did it to themselves, I pray for the hipster urban white family that thought living amongst the free cheese eaters in some inner-city hot spot would somehow work out. First, they will get trapped and then crushed by falling home prices. Then, they won’t be able to protect themselves due to the liberal gun laws. Even if they were armed to the teeth it wouldn’t be anywhere near enough to save them from the coming savagery. Prayers for these idiots; please.