walkitout (walkitout) wrote,
walkitout
walkitout

Whyte on building office towers

p 334 I'm going to quote extensively and hope it qualifies as fair use, because I really want to _not_ misrepresent his argument.

"Conventional economic development programs concentrate on hanging on to big firms with tax abatements and other defenses." This was specific to the period Whyte was researching and writing, but isn't totally wrong now. This strategy has numerous problems: "tax abatements come on strong in the boom periods, when they are least warranted...Corporate gratitude ... is a nonfactor. ... Sponsors of big office projects press for concessions and threaten to pack up and go to Stamford if they don't get them. If the city calls their bluff, they will probably stay. If they do go, it will serve them right."

"Most cities have assumed that [major office projects are the prime source of new jobs] and have equated office building construction with the city's economic vitality. But the growth is in firms that are priced out of the tower market. They need older, somewhat beat-up quarters off to the side but not too far from the center."

Whyte then quotes Birch saying companies that can afford tower rents aren't making new jobs and tower development destroys older buildings that were cheaper to rent. There's an obvious question and give Whyte credit (lots and lots of it) for asking it and providing an answer:

"If the number of people who can afford the high rents of the towers is diminishing, how come so many new towers are being built? It is not because of any excess of demand. Office vacancy rates across the country have been rising for some time. The impetus for construction has been financial. It has been driven by a huge supply of investment capital."

It would be a wrong to say that any segment of construction is hot right now, but the towers that were going up in cities like Seattle prior to the bust were residential, and some of the same arguments were brought up against them that Whyte brings up against commercial space: tearing down aging buildings with less expensive rents to put up a new building with higher rents (or sales price in the case of a condo building) decreases availability of the kind of space that people need and increases the availability of the kind of space that we already have too much of. In theory, markets shouldn't do this, but when there's a big pile of money looking to become a bigger pile of money, the high markups associated with luxury housing are pretty appealing.

It's an interesting argument and at times it is correct. When I read sites about multifamily development, there's an obsessive attention to vacancy rates, absorption and ability to raise rents that suggests developing new multifamily right now is very appropriate (altho you do have to get the price point right, multifamily for rent developers are not focused on the very high end right now, and some of the for-sale developments that didn't finish or didn't sell-out prior to the bust got down-converted to for rent for more reasonable parts of the market).

It's been a real education, the last couple of years, trying to predict the bottom for our purposes, buying, and then watching prices on and off and sales to try to figure out whether we got it right. Translating that lesson into a regional, or national understanding of for-lease markets, however, is really tough. And I also feel like Whyte missed a big part of the commercial space boom of the 1970s: it was probably driven as much by jobs-for-union-construction as anything else. I've never lived in NYC, but the commercial office tower boom was not limited to NYC, and even as a kid it was pretty obvious how unions, elections and work building towers downtown fit together in Seattle. If it wasn't obvious in the 1970s, it was sure as fuck obvious after the boom ended in the early 1980s.
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