Wall Street denied it and mainstream media refused to publish our trend forecasts of a sinking commercial real estate sector that we made back in March 2020 when the COVID War was heating up. 
With cities locked down, people working from home, and office occupancy rates plummeting, we had forecast that commercial real estate would get hit hard.  
Now, as evidenced, more corporate tenants are trying to shed their New York City offices.
Macy’s and Peloton are trying to escape from leases or sublet their spaces; JP Morgan, whose CEO, James Dimon, has summoned employees back to their corporate digs, has offered 700,000 square feet for sublet in the financial district.
The amount of office space now offered for sublease by tenants exceeds that available from landlords, according to The Wall Street Journal.
The trend seemed to reverse early this summer, but in July several large spaces came onto the subleasing market, pushing space available as sublets to a post-crisis high, the WSJ reported.
Subletting can offset the cost of lease payments on space a company no longer needs; it then can write off the remaining loss on its taxes.
For landlords, though, the strategy puts them in direct, and often losing, competition with their tenants, who typically offer sublease rates below the rental rates a landlord will accept.
The crisis landlords face will worsen over the next three years: 25 million square feet of new or refurbished office space will come on the market during 2022 through 2024, the most in any three-year period since the 1980s, according to Colliers International senior managing director Franklin Wallach.
That new space will directly compete for tenants with the 21 million square feet that corporations are now trying to unload, the WSJ said.
TRENDPOST: As we had noted, some large employers, such as JPMorgan Chase, are ordering workers back to central offices for at least a portion of the workweek. However, those workers will return to city centers in daily numbers too small to support the same broad downtown business ecosystems that depended on commuters.
As a result, downtown businesses will shrink in numbers. Lease prices and real estate values will continue to spiral down until they reach a level businesses and investors will accept.
The smallest commercial landlords, which have fewer reserves than the Bigs, will sell out or go bankrupt; property owners and investors with deep pockets will buy those properties and grow even bigger.
As we noted in our “Real Estate Industry Update,” 13 April 2021, moves to change zoning laws to turn empty commercial buildings into residential ones will not replenish the loss of rental income from commercial tenants and economic loss for retail, restaurant, tourism, and hospitality businesses that thriving commercial cities generated.
At the bottom of this downward spiral: city treasuries, which depend heavily on property taxes for revenue. (Property taxes account for more than 40 percent of New York City’s annual budget.) Less revenue means fewer services, leading to a reduced quality of life, persuading even more people to move away, reducing property tax revenue.
TREND FORECAST: As we said in last week’s article “STATE STREET QUITS TWO MANHATTAN OFFICES,” we see nothing that brightens the grim outlook for commercial real estate in major urban centers, especially in the Northeast or West Coast. 
We have published numerous articles and trend forecasts regarding the commercial real estate sector and their implications including the plight of commercial real estate landlords, as well as city coffers, in “WORK FROM HOME = CITY REAL ESTATE DOWN” in our 20 October 2020 issue.
Also, we have documented the plight as it has worsened (“OFFICE WORKERS’ SLOW RETURN ENDANGERS LANDLORDS, CITY FINANCES,” 9 March 2021). That portends an equally bleak future for the shops, bars, restaurants, salons, and other businesses that form the economic ecosystems that depend on commuters.
TRENDPOST: Not every company is forsaking Manhattan. 
Private equity firm Tiger Global is negotiating more space for its 50,000-square-foot headquarters on 57th Street. Stone Ridge Asset Management just picked up 100,000 square feet on four floors at One Vanderbilt; investment company Citadel has pledged to take 300,000 square feet at 425 Park Ave., now being developed, and may add space at another office tower in town.
However, these are exceptions: hedge funds and private equity firms have profited enormously over the past 18 months and are in the high-risk business. And in reality, the spaces they lease will be specks amid the roughly 40 million feet of space looking for tenants over the next three years.
As we have forecast, cities with commuter-based economies, such as New York and San Francisco, will face major property-tax losses as office buildings lose value. Those cities will be forced to slash services, reinvent their revenue streams, or, most likely, both.

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