High inflation and continued talk of a pending downturn continue to have an adverse impact on commercial real estate. In a recent article, The Washington Post introduced another potential hazard: The urban doom loop. This concept does not only refer to major cities such as New York, San Francisco or Chicago but also midsize cities that may lack the resources necessary to offset the blow when a major company slashes office space or downtown turns into a ghost town.
The worst-case scenario includes more remote workers leading companies to rethink their leases and increase vacancy rates; property owners struggling with mortgage payments; business districts emptying due to fewer shoppers and tourists visiting downtown areas; restaurants and retail stores laying off employees or shutting down completely – all of which could lead into an “urban doom loop” according Stijn Van Nieuwerburgh, professor at Columbia University’s Graduate School of Business who coined this term in late 2022 paper published by the National Bureau of Economic Research.
Fortunately for some metros, stimulus cash from American Rescue Plan 2021 can help prevent this spiral from taking place while others might be more exposed due local tax legislation according Tracy Hadden Loh from Brookings’ commercial real estate expert . Additionally, Lonnie Hendry , senior vice president at Trepp pointed out that it is very early in the cycle so there are still signs of hope despite high office delinquencies in midsize cities as well as low occupancy rates being reported across these regions .
