The commercial real estate market is headed for a severe collapse due in large part to sky-high interest rates and declining property values, according to a survey of investors.
Around two-thirds of those who responded to a Bloomberg News survey said they believe that the commercial real estate market will recover only after a crash.
When asked when they believe the price of office properties will hit bottom, 44% said they expect that to happen in the second half of next year while 22% said it will be in the first six months of 2024, according to Bloomberg News.
Just 6% of the 919 respondents said that prices would bottom out this year while 29% predicted that it would happen in 2025 or beyond.
The Fed has raised interest rates aggressively, which is increasing the cost of financing commercial properties at a time when there is also reduced need for them, which has hit rent levels.
Investors are bracing for a possible crisis triggered by default on $1.5 trillion in debt that is coming due by the end of 2025,.
Some $270 billion in commercial real estate loans held by banks are set to mature in 2023, according to Trepp.
Over the next four years, commercial real estate properties must pay off debt maturities that will peak at $550 billion in 2027, according to analysts at Morgan Stanley.
Earlier this month, a study released by economists from NYU Stern Business School, Columbia Business School and the National Bureau of Economic Research showed that vacancy rates are at 30-year highs in many American cities.
In New York City, the vacancy rate was 22.2% in Q1 of 2023.
Office buildings in New York City — the world’s largest commercial real estate market — have lost $76 billion in value from their most recent sales prices, according to broker JLL.
Blackstone and RXR sold the office building at 1330 Avenue of the Americas for $320 million — a third less than the listing price in 2006.
Real estate firm Cushman & Wakefield recently predicted that there could be 1 billion square feet of unused office space in the US by 2030.
The New York Fed said earlier this year that it was unclear when or if the commercial real estate sector would return to its prior strength.
While the residential rental market has bounced back, the retail and office markets have remained slack – largely due to the shift to remote work and online shopping, the bank said in a posting on its website.
Commercial rents in Manhattan are down a lot from where they were before the pandemic, and this weakening trend may continue as more and more commercial tenants roll off leases that were negotiated when demand for office and retail space was far stronger.
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Tom Hollander says he’s not worried about AI actors replacing real ones and thinks the creation of synthetic performers will only boost the value of authentic, live performance.
The 58-year-old plays entrepreneur Cameron Beck in The Iris Affair, a drama about the world’s most powerful quantum computer.
Dubbed “Charlie Big Potatoes” – it could eat ChatGPT for breakfast.
It’s a timely theme in a world where Artificial Intelligence is advancing at pace, and just last week, the world’s first AI starlet – Tilly Norwood – made her Hollywood debut.
Hollander is not impressed. He suggests rumours that Norwood is in talks with talent agencies are “a lot of old nonsense”, and questions the logistics of working with an AI actor, asking “Would it be, like a blue screen?”
Norwood – a pretty, 20-something brunette – is the creation of Dutch actor and comedian Eline Van der Velden and her AI production studio Particle6. It’s planning to launch its own AI talent studio, Xicoia, soon.
Hollander tells Sky News: “I’m perhaps not scared enough about it. I think the reaction against it is quite strong. And I think there’ll be some legal stuff. Also, it needs to be proven to be good. I mean, the little film that they did around her, I didn’t think was terribly interesting.”
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The sketch – shared on social media and titled AI Commissioner – poked fun at the future of TV development in a post-AI world.
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Stars including Emily Blunt, Natasha Lyonne and Whoopi Goldberg have objected to Norwood’s creation too, as has US actors’ union SAG-AFTRA.
Hollander compares watching an AI performer to watching a magic trick: “You know with your brain that you’re watching something that’s bullshit… If they don’t have to tell you, that would be difficult. But if they’ve told you it’s AI, then you’ll watch it with a different part of your brain.”
Image: Pic: Sky Atlantic
Always screen-ready, with no ego and low salary requirements, Norwood is being billed as a studio’s dream hire. In line with Hollywood’s exacting standards for female beauty, she’ll also never age.
Hollander’s Iris Affair co-star Niamh Algar, who plays genius codebreaker Iris Nixon in the show, doesn’t feel threatened by this new kid on the block, poking fun at Norwood’s girl-next-door persona: “She’s a nightmare to work with. She’s always late. Takes ages in her trailer.”
But Algar adds: “I don’t want to work with an AI. No.”
She goes on, “I don’t think you can replicate. She’s a character, she’s not an actor.”
Image: Pic: Sky Atlantic
Algar says the flaw in AI’s performance – scraped from the plethora of real performances that have come before it – is that we, as humans, are “excited by unpredictability”.
She says AI is “too perfect, we like flaws”.
Hollander agrees: “There’ll be a fight for authenticity. People will be going, ‘I refuse makeup. Give me less makeup, I want less makeup because AI can’t possibly mimic the blemishes on my face'”.
He even manages to pull a positive from the AI revolution: “It means that live performance will be more exciting than ever before…
“I think live performance is one antidote, and it’s certainly true in music, isn’t it? I mean, partly because they have to go on tour [to make money], but also because there’s just nothing like it and you can’t replace it.”
Algar enthusiastically adds: “Theatre’s going to kick off. It’s going to be so hot.”
Image: Pic: Sky Atlantic
As for using AI themselves, while Hollander admits he’s used it recently for “a bit of problem solving”, Algar says she tries to avoid it, worrying “part of my brain is going to go dormant”.
Indeed, the impact of technology on our brains is a source of constant inspiration – and torture – for The Iris Affair screenwriter Neil Cross.
Cross, who also created psychological crime thriller Luther, tells Sky News: “We are at a hinge point in history.”
He says: “I’m interested in what technological revolution does to people. I have 3am thoughts about the poor man who invented the like button.
“He came up with a simple invention whose only intention was to increase levels of human happiness. How could something as simple as a like button go wrong? And it went so disastrously wrong.
“It’s caused so much misery and anxiety and unhappiness in the human race entire. If something as simple as a small like button can have such dire, cascading, unexpected consequences, what is this moment of revolution going to lead to?”
Indeed, Cross says he lives in “a perpetual state of terror”.
Image: Supercomputer ‘Charlie Big Potatoes’. Pic: Sky Atlantic
He goes on: “I’m always going to be terrified of something. The world’s going to look very different. I think in 50 or 60 years’ time.
He takes a brief pause, then self-edits: “Probably 15 years’ time”.
With The Iris Affair’s central themes accelerating out of science fiction, and into reality, Cross’s examination of our instinctual fear of the unknown, coupled with our desire for knowledge that might destroy us is a powerful mix.
Cross concludes: “We’re in danger of creating God. And I think that’s the ultimate danger of AI. God doesn’t exist – yet.”
The Iris Affair is available from Thursday 16 October on Sky Atlantic and streaming service NOW