How Low Can Blue Cities Sink?

Americans are fleeing blue states, and especially blue cities, in historic numbers. Can things possibly get worse? They can, indeed they can.

Take San Francisco. Things are so bad there that Whole Foods, an iconic liberal company, has shut its flagship store in that city after just one year of operation, due to rampant crime and drug use that, the company said, made it impossible to assure the safety of its employees. But when it comes to commercial real estate, San Francisco, while very bad, is not the bottom of the barrel.

John Phelan reports on a series of corporate departures from Minneapolis and St. Paul. The numbers are grim. Quoting Twin Cities Business (link in the original):

With over 21.2 million square feet of vacant office space in the Twin Cities metro, office vacancy rates in the area are up 12.2% year over year, according to a recent report by Toronto-based Colliers International.

The Minneapolis and St. Paul office market has continued to show a “negative absorption” rate in the first quarter of this year. This simply means the demand for office space is lower than the supply available. The report points to properties like Voya, Calabrio, and WeWork, which have all vacated or downsized leased spaces, leaving around 100,000 square feet each in their buildings.

The reality is worse than these numbers indicate. Large chunks of downtown Minneapolis (and St. Paul) are not recorded as vacant because someone is paying rent on them, but in fact no one is working in those offices. Companies are simply waiting for their leases to expire. Thus the situation is getting worse, not better.

The Twin Cities is one of only three major markets that continue to post negative absorption rates every quarter since the pandemic started, the other two being Baltimore and Chicago.

John comments:

In short, businesses are fleeing downtown for the suburbs. With all due respect, Baltimore and Chicago [are] not company you want to be in.

Note that San Francisco’s vacancy numbers, bad as they are, are better than these three metro areas’.

I am not sure whether the black comedy of the conclusion of this Colliers report is intended or not:

“Government incentives can themselves become strong components to kick-start adaptive reuse and make possible otherwise impossible conversions,” the report states. “As more obsolete office buildings are considered for adaptive reuse, potential long-term ramifications will emerge as to how housing will reshape the neighborhood and shift the city’s property tax basis.”

Phelan comments:

Minneapolis can, then, replace these lost business tenants with subsidized renters and have them make up for the resulting tax loss.

Section 8 housing! That’s the ticket! Blue cities are in desperate straits, and they have no idea how they can recover–and in fact, as long as they continue the policies that got them into this fix, they can’t recover.

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