CR GREATEST HITS©
Two things that will have a significant impact on the global economy are unemployment and its effect on commercial real estate. Although this impact will be felt first in the U.S., other countries will soon follow. For example, what happens in the U.S. relative to the economy also happens in the Euro zone shortly after. It just takes awhile to catch up. You will see unemployment continue to rise. After the weak holiday sales season, you will see many stores close up and lay off all their people. Although they will say that the holiday sales season was good or up from last year, they already have plans to close their stores and lay people off. This will drive unemployment to 8% – 9% in the U.S. and will have ripple effect around the world. (NEWS proof) So what you will see is that stores in big cities like New York and in malls across America will be closing their doors.
Malls may become ghost towns. Not to mention stores that are based in strip malls. This will cause commercial real estate landlords to try and wait out the bad times and sit on empty commercial space. That is what they normally do, but this time they will not be able to wait it out. People who have sublet space will be the biggest losers as the landlord will come to them to recoup losses. This weakening of the global economy will not just be restricted to stores. Any speculative investors in commercial real estate will see huge wave of economic problems hitting their renters. These renters could be in apartments, condos, offices, homes for senior citizens, or hotels. (NEWS proof) There will also be much industrial real estate sitting empty when masses get laid off. What can they do? At first they will be shocked. They will then try to lower rents and get people back into their properties. However, there is another element to consider. Even if renters came back into their buildings they would find their operating costs rising from all directions. Even if the rent stays the same or gets lowered, their operating expenses will rise through the roof. This will force them to lay more people off. Or, just close down and go out of business altogether. This is probably the major economic problem that President Obama will face . . . unemployment and rising costs.
QUESTION: With this spike in unemployment, what will be the domino effect of living in the Cities?
ANSWER: Since most people now live in cities, you will see unemployed people trying to find another job but can’t. They may be financial people from Wall Street or clerks in stores. Plus, once all these people lose their jobs, other jobs that supported the lifestyles of these people will also disappear. Like restaurants and nightclubs that catered to these types. You will see less buying of high-end products like art. So galleries will be closing. Once these city dwellers realize their fate, they will leave the big cities and move to find a job. Many may move back to where they were born and where they still have ties in the community. You will see many totally switching careers. A Wall Streeter may become a farmer. People will look back at this time of hardship and realize it saved their life.
QUESTION: What do you recommend for someone considering making a major purchase this holiday season in light of many stores planning to close?
ANSWER: Watch what you buy and who you buy it from. People who purchased expensive things from the Sharper Image last holiday season, didn’t expect they would be going out of business after the holidays. Stay away from gift cards for stores that may close. Do not buy extended warranties on products that you may find the store out of business. And, be careful with all major purchases. (NEWS proof) You can’t even be sure that your car company will be around next year.
QUESTION: What will happen to commercial landlords who try to wait it out like they have in the past?
ANSWER: They will wait too long and then panic and cut their rents in half. This is not good as their operating costs haven’t changed. Plus, any potential tenant will have enormous amount of choices to pick from and will work even better deals by playing the landlords off one another.
QUESTION: You said, “they will wait too long.” How long is too long?
ANSWER: They will try to survive during 2009 and then panic in 2010.
QUESTION: When will commercial landlords feel the first shock?
ANSWER: Some are already expecting it, but you will see a huge wave of empty commercial real estate coming by the second quarter of 2009.
QUESTION: Please be specific. What do you mean when you talk about “rising operating costs?”
ANSWER: If your rent goes down even in half, your utility bills, insurance costs, costs of outfitting an office with furniture and technology, insurance costs for employees, health benefits, and the fact that employees have to make more because their costs of commuting are rising. You will see that you are not ahead even if rents fell in half.
QUESTION: How will the people disperse and operate in the future?
ANSWER: More and more people will work virtually from home. More and more will be hired as contractors to keep company costs down. Some contractors may find themselves working for several companies at one time. Others who just leave the cities with the desire to change their lives and change their stress will look for smaller communities that have a goal of cooperative survival. This new model of small towns where everyone works for the benefit of all will become quite popular.
QUESTION: Where are these small towns?
ANSWER: These are towns that could be isolated from a big city and operate as a microcosm of functionality and sound economy. Others may be near large attractions where they have a constant flow of tourism. Keep in mind that cooperation will be the new buzzword whether it relates to a small town working together or a country that realizes they must cooperate and not dominate.