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Another Reason To Ditch Property - Commercial Office Space Comes Under Pressure

May 07, 2020 6:00 AM ET2 Comments
Tim Worstall profile picture
Tim Worstall


  • As we know, the internet has been making inroads into brick-and-mortar retail, leaving some portion of retail property empty.
  • This has led to several of the retail property companies in the UK - intu most notably - suffering, with terrible problems remaining afloat.
  • It's possible that the same is going to happen to office property, the other sector of the commercial property world.

As with retail, so office property?

The travails of the retail property world in the UK have been well-rehearsed by me here before. Roughly, and approximately, 20% of retail sales are now online. Some 20% or so of retail property is empty - this is not a coincidence. The estate built for the earlier form of brick-and-mortar buying is now not appropriate - is too large in supply - for our new internet-connected world.

This then interacts with the manner in which most property companies are - righteously - geared with borrowings. As the equity value of the properties falls, as rent rolls do, the debt burden does not - it's the shareholders that get wiped out, that is. This is what has happened at intu (OTC:CCRGF). Nothing really wrong with the company other than the world around it has changed.

So here's the thing, might the same be about to happen to office property?

The answer is yes, to at least some extent. The investment case for commercial office property is now rather worse than it was. No, not just because of the recession, but because of what we might call "coordination."


One thing that economists like to go on about is "coordinations." This is where there's a way of doing the thing, whatever it is. It doesn't particularly matter what thing nor the way it is being done. Only that it is done this way and that's the way everyone does it. This makes a change in that way of doing the thing difficult as we can't just have a marginal change, at the edge, which then slowly spreads. Because the way I do something is reliant upon the way everyone else does it means that a group of us at least must change at the same time.

This article was written by

Tim Worstall profile picture
Tim Worstall is a wholesaler of rare earth metals and one of the global experts in the metal scandium. He is also a Fellow at the Adam Smith Inst in London and an writer for a number of media outlets, including The Times (London), Telegraph, The Register and even, very occasionally indeed, for the WSJ. This account is linked with that of Mohamad Machine-Chian: https://seekingalpha.com/user/52914142/comments

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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