Marketplace - Signs of life in commercial real estate

Episode Date: December 19, 2024

Amazon is reportedly postponing a return to in-person work for a portion of its staff due to insufficient office space. It’s not alone. For the first time since the pandemic began, office real estate may be heating up. Also in this episode: Exports, particularly in the electronics sector, drive GDP growth, Chinese importers of U.S. goods prep for retaliatory tariffs and insurers push back against “nuclear” verdicts in personal injury cases.

Economic growth, a little commercial real estate, and a steak dinner to top it off. From American public media, this is Market Plans. In Los Angeles, I'm Kyle Rizdall. It is Thursday today. This one is the 19th of December. Good as always to have you along, everybody. Remember yesterday when Fed Chair Jay Powell said the economy's in a good place? This is part of what he was talking about.

The Bureau of Economic Analysis let it be known this morning that the final update on gross domestic product showed an annual growth rate of 3.1% in the third quarter. That's an upward revision from the last estimate and it means economic growth actually sped up in July, August, and September compared to the previous three months. One driver of that growth? Exports. They were up nearly 10% over the past quarter. Marketplace's Stephanie Hughes gets us going with this look at what we're selling that the rest of the world is buying. The U.S. exported more of what are called capital goods in the third quarter.

These are things that help businesses make other things. Especially semiconductors and other ICT products, information communication technology, think computers and stuff. Emily Blanchard studies international economic policy at Dartmouth. She points out that the computing industry is highly dependent on global trade. And while the US does import a lot of computer parts, it exports them too. The components and the bits and the bobs and the machinery, this is all going in and out almost like respiration,

like breathing. Lanchard points out that the increase in computer related goods lines up with an increase in the export of computer related services. You sell the machine, but you also sell the engineers who can fly over and help you set up the product or go and maintain the product. This export growth might not be sustainable, says Cornell trade policy professor Ishwar Prasad. He says the U.S. economy is doing really well, but other countries are stumbling.

When the rest of the world is in crummy shape, economically speaking, the reality is that they're just not going to be able to buy much stuff or services from the U.S. Prasad points out that imports also increased in the third quarter, underscoring the U.S. economy's growth. Especially because a lot of this growth has been driven by consumer demand. We are buying a lot more stuff from the rest of the world. Those imports could be going up, says Syracuse economics professor Ryan Monarch, as both companies and consumers rushed to buy things before anticipated tariffs from the Trump

administration. Let's get it on the boat. Let's make our orders. Let's buy our car now before we have to pay more for the parts, right? Monarch says if more U.S. tariffs are imposed, he expects other countries will impose tariffs on our exports too, making our stuff more expensive, which means they might buy less of what we're selling in the future. I'm Stephanie Hughes from Marketplace. More on tariffs coming up a little later in the broadcast. On Wall Street today, the Dow snapped its longest losing streak in 50 years, but just

by the hair on its chinny chin chin. We will have the details when we do the numbers. The marketplace organized labor macroeconomic word of the day today is leverage. Because just in time for the holiday crunch, Amazon is having some union troubles. Thousands of workers at seven of the company's fulfillment centers across the country have gone on strike. Amazon does say that it doesn't figure the strike is going to disrupt holiday deliveries, so there's that. Meanwhile, though, the company is facing an altogether different problem with its office

workforce. Starting in the new year, corporate Amazon employees are supposed to return to the office five days a week. But Bloomberg is reporting the retailer is delaying some of those plans because it just doesn't have enough places for those people to go. And Amazon's not alone. Premium office space is once again at a premium, as Marketplace's Matt Levin reports.

Generally speaking, the office real estate market is still not good. Vacancy rates across all types of office space are around 20 percent, and higher tier properties are still struggling to find tenants. If your return to office pitch is, hey, you can cosplay Last of Us in this vaguely post-apocalyptic central business district, your employees are gonna prefer Zoom. But for some very fancy offices in certain locations, yeah, demand is back. Fulton Market, West Loop Chicago, Uptown Dallas, Downtown Miami. Thomas LaSalvia is head of commercial real estate at Moody's Analytics. What do those neighborhoods have in common?

They have life. They have restaurants and bars. They have parks. They have walkability. The era of big companies rapidly shedding office space is just about over, says David Smith at Cushman and Wakefield, as return to office plans finally leave the planning stage. So now they're looking at their portfolio and saying, okay, we're going to need to expand over the next couple of years as we grow and as we bring people back. Leasing activity and prices

were up this year in elite Class A offices in desirable areas, and it's not just being driven by big tech. The legal sector has actually been setting records in terms of leasing space the last couple of years. Smith says that's partly because law firms want young associates to spend more time getting face-to-face mentorship. Thing is, the number of shiny new Class A office buildings under construction is set to decline, which could bring some life back to Class B office buildings, especially those that have made post-pandemic upgrades," says Mike Watts at CBRE. Mike Watts, CBRE CEO, CBO, CBO, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE,

CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE,, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, CBRE, I'm Matt Levin for Marketplace. Don't know if you saw this yesterday, but the Environmental Protection Agency made some news. It decided to let California and 11 other states ban the sale of new gasoline-powered cars after 2035.

The clock, of course, is running on the Biden administration's policies, but as the political fight over the EV sales plays out here, let us turn our eyes to Norway, shall we? Kari Lundgren wrote in Bloomberg the other day about how Norway is oh so very close to the only new cars being sold there being EVs. Kari, welcome to the program. Good to have you on. Yeah, nice to be speaking with you. There are so many ways that EVs should not be working in Norway, right?

It's cold, there's lots of hills, and yet somehow they've done it. How? It's been an amazing journey. If you look back about a decade, there were only 3% of the cars on the road were EVs. And today it's close to 30%, and about 96% of sales are EVs. So that's been an incredible journey. I think we can look, if you're looking back to sort of the mid 90s, there was actually a homegrown EV. It wasn't the greatest of EVs. It was boxy and awkward. But there were a lot of policies put in place at the time to sort of incentivize that car.

Then fast forward, you started seeing other models being made available. And because those incentives have been in place since the mid 90s, they were actually price competitive with fossil fuel models. And that was really key to them taking off in Norway. When you're driving around Oslo, first of all, do you drive an EV? I don't. I don't actually have a car. Well, when you're walking around Oslo, what does it look like? I mean, are there, you know, high powered chargers all over the place and all that stuff, the infrastructure? Yeah, I mean, it's incredible. You see just the range of EVs on the road

I mean all sorts of different Chinese models XPeng's Neos voyeurs And then yeah chargers chargers on pretty much every block of all sorts of different descriptions Some are from the city and some are you know, Tesla one summer circle K like the one I wrote about Okay, okay. Like Circle K, Circle K? Yeah, Circle K, Circle K. They actually have been really pushing EV charging. And it's interesting because initially, you know, the government did subsidize some of the charging network. But now, you know, they don't need to do that anymore because it's actually competitive for companies like Circle K and some of the other oil and gas companies to actually be

installing the chargers. Since you mentioned oil and gas, Norway has a huge reserve, shall we say, of oil and gas, both buried underground, but also the money in the bank. That helped you, right? Yeah. I think it's an interesting aspect of this because I often get people saying, well, Norway had lots of money, so how is this relevant for the rest of the world? And I think what is important to realize that Norway was a first mover here, and there's people saying, well, Norway had lots of money, so how is this relevant for the rest of the world? And I think what is important to realize that Norway was a first mover here, and there's

always a cost to being a first mover. But this was expensive 10 years ago, but now what you're seeing is that the price of the cars has come down a lot. So where the money has helped has been sort of rebuilding some of that infrastructure. People weren't actually paid to buy an EV. What happened is that through taxation, it was more costly to buy a fossil fuel car. So people naturally chose an EV. But what has happened is that in the tax budget, normally the taxes you would have made off

of bringing in revenue from fossil fuel car, the registration tax, nor we can forgo that because there's this excess of oil wealth. Right. You do mention in this piece that government policies have been remarkably consistent over the decades and that has really helped. And obviously I'm thinking here now of what's going on in the States and how we are not consistent in our policies. Well, and it's so interesting.

You mentioned earlier the oil wealth. And if I were to actually say to you like what sets Norway apart, I would say that that government consensus has been really critical because like you've had left leaning governments, you'd have right leaning governments and either way, they've basically kept these policies in place. So all of that like, you know, it and it's a small place. I think there's been a bit of pride that we're world leader or Norway's a world, I shouldn't say we, but we're Norway's a world leader in this. There's something about that as well. Yeah.

We should say here just on the way out, uh, gas powered vehicles are still the majority of cars on the road over there and they're going to be there for a good long while. Yes. I, and I think that is actually also has underpinned this policy in some ways is that people aren't being forced to choose an EV. They're being incentivized to do so.

If you're a farmer up in some of these valleys, you may have legitimate reasons for why you just don't think an EV makes sense for you, or you may be somebody who just loves driving a fossil fuel car. I think that's been really also important in that it takes the air out of the balloon in terms of the controversy around it. People just are like, oh, I'm going to get a car and it happens to be an EV and I'm excited about that. It's like one of the guys in one of the shops I went into and he's like, five years ago,

it was always a discussion about like, oh, are you going to buy an EV? That's going to be kind of different. And now it's like the opposite. Oh, you're buying a fossil fuel car. That's kind of different. Why are you doing that? You have to explain yourself, you know But as you say there are still fossil fuel cars on the road and they will be for for a while yet Car Lundgren at Bloomberg car. Thanks a bunch. Appreciate your time. No worries. Thanks The thing about tariffs, as we know, President-elect Trump's favored trade tactic, the thing about them is that they happen not in a vacuum.

We obviously can't know exactly what the once and future president has in mind until he tells us. But at the moment, the officer on the table are for 10% tariffs on everything coming into this country from anywhere, 25% on goods from Mexico and Canada, and another 10% on top of the current duties on goods coming from China. Last time around in 2018, when then President Trump imposed tariffs on Chinese goods, China countered with tariffs of its own. See also, tariffs not happening in a vacuum.

This time, it's going to be same same, and businesses in China that import from the United States are bracing themselves. Marketplace's Jennifer Pak reports from the central Chinese city of Wuhan. At a restaurant in a Wuhan mall, I meet entrepreneur Suneng Wu for dinner. Business has been good, he says, but not as good as it used to be. Su sells water treatment equipment for cooling systems, mostly from the U.S. to Chinese data centers. He started the business in 2018, the year the first Trump administration imposed tariffs on Chinese exports.

When Trump imposed extra tariffs on Chinese exports, China fought back by levying an extra 10 percent tariffs on American exports. So the total tariff rate for us became 23 percent. He says he absorbed the additional costs, some $290,000 between 2018 and 2019. Today the counter-tariff remains, but the Chinese government also has a policy to exempt some firms. We applied and we were exempted from the extra 10 percent duties. But that exemption might not last. Last month, President-elect Trump made headlines when he said he will impose another round of tariffs,

an extra 10% on all Chinese exports, once he gets into office. China's foreign ministry reacted by saying no one wins in a trade war. Then Chinese Vice Minister of Foreign Affairs Hua Chunying posted a video on the social media platform X. China, it said, would be ready for whatever happens. What cannot kill you will only make you stronger. There followed a list of China's great modern achievements from its first supercomputer in 1983 to its own satellite system today. Cameron Johnson is a supply chain's expert based in Shanghai with the consultancy Tidal

Wave Solutions. Johnson says in 2018, one of then-President Trump's stated goals in imposing tariffs was to bring manufacturing back to the US. But so far, there's really no reshoring whatsoever to the US. He says if you want high end products and lots of them, China is still the place to make them, though some Chinese manufacturers have also opened a factory site elsewhere. Often it's in Southeast Asia, perhaps Vietnam, Thailand, Malaysia. Meanwhile, he says, Chinese counter tariffs have hurt firms selling American products in China by making them more expensive.

And European and other Asian companies took market share from them. Entrepreneur Su Nengwu says he started selling US equipment because Chinese goods couldn't match their quality. Many Chinese people also believed that American products were the best and wanted them. But not if prices go up, because of tariffs or anything else, Su says. Already, his American suppliers have increased prices twice because of inflation in the U.S. I absorb the extra cost because my Chinese clients won't. All I can do is take a cut in profits.

So I've been importing less from the U.S. and looking for substitutes from the domestic market. And are some of those Chinese substitutes possibly copying American designs, I ask? Possibly, he says. In Wuhan, I'm Jennifer Pak from Marketplace. Coming up. The jury rendered a verdict in his favor for $725 million. That is real money.

But first, let's do the numbers. Dow Industrial's picked up 15 points today, less than a tenth of 1% finished at 42,342, did the blue chips. The Nasdaq down 19 points, a 10th percent, 19,372. The S&P 500 gave back five points just shy of a tenth percent 58 67 there Micron technology tumbled 16.2 percent today after the chipmaker issued weaker than expected guidance for its fiscal second

quarter homebiddle Lennar gave back 5.2 percent after posting fourth quarter earnings that missed expectations the firm said high mortgage rates limited its sales. Hmm. Toll Brothers off 1.5%. BondsFell yielded on the 10-year T-note, rose to 4.56%. Take that, J-PAL. You're listening to Marketplace.

You turn to Marketplace for up-to-the-minute news, for stories that show you the connections between global events and your personal economy. And you're not alone. Marketplace is the most widely consumed business and economic news program in the country. We're proud to make fact-based journalism freely accessible. And Marketplace investors make it all possible. Your year-end donation today will make a real difference in our nonprofit newsroom and in

the lives of millions of Marketplace listeners every single day. So please contribute what you can today at marketplace.org slash donate. This is Marketplace. I'm Kai Rizdal. If you've been to an Olive Garden lately or Longhorn Steakhouse, Ruth's Chris Steakhouse, Cheddar's or the Capital Grill, Darden restaurants would like to thank you because they have had a good couple of months. Sales were up 6% in Darden's second quarter, but that is an overall number.

At its more casual brands, things were good. At its more fine-ish dining establishments, though, not so. Which, as it turns out most things do, can tell us a little something about this economy. Marketplace's Samantha Fields is on it. At the Capital Grill, you can get a filet mignon or a dry-aged New York strip steak for about $60. Or there's always the porcini rubbed bone-in ribeye for $80. At Longhorn Steakhouse, meanwhile, you can get a filet or a New York strip for around $30. These days, Andrew Sharpie at Alex's partner says more people seem to be opting for the latter.

Longhorn, it's a good quality steak in the minds of the consumer at a reasonable price. It's not inexpensive. But it's not overly expensive either. Sam Okus at Nation's Restaurant News says 2024 has been a year of people looking for deals and value. And when it comes to eating out. Customers are trading down. Trading down from fine dining

to casual and casual to fast casual. Casual dining brands, I think, are really benefiting from people who still want a high quality experience. They still want a great meal, but they don't want to spend as much money. A lot of companies don't want their employees to spend as much money these days either. And Sharpie at Alex Partners says that has posed another challenge for expensive restaurants. You know, the business traveler drives a lot of the higher-end finer dining. And as folks are being told to be mindful of their expenses, that's creating some headwinds in fine dining.

Casual restaurants have another advantage over fancier ones these days, too. Steven Seagor at Columbia Business School says that's delivery. Delivery has become a force in restaurants. And you see it much more frequently in more modest priced restaurants, more casual restaurants than you do in luxury restaurants. Because if you're going to spend $60 or $80 on a steak, you probably want the nice tablecloth and the ambiance to go with it. I'm Samantha Fields for Marketplace.

Saw this in a publication called Reinsurance News the other day. Reinsurance, of course, is the industry that insures insurance companies. It's a way for those primary insurers to lay off a bit of their risk in case of big claims. Anyway, Reinsurance News is reporting that a division of Lloyd's over in London, one of the insurance biggies, has launched a new index to track global personal injury awards. And in point of fact, the size of jury awards in personal injury cases here is up quite a bit, as Marketplace's Sabri Benishaw reports. Paul Gill worked as a mechanic for an oil company in the 70s. He would use gasoline as a cleaning material, came into contact with it a lot. As a result of his exposure to benzene in the gasoline, as well as from other sources, he developed a blood cancer.

Patrick Weigel is one of Gill's attorneys. Gill had to get a stem cell transplant and go on immunosuppressant drugs. He developed a secondary colon cancer as a result of the immunosuppressive treatment, and he's currently undergoing chemotherapy. Gill sued Exxon and won. And the jury rendered a verdict in his favor for $725 million. Exxon is appealing. Verdicts like this often fall on insurers, and insurers have a term to describe them, nuclear.

Nuclear verdicts are typically defined by those in the insurance industry as those verdicts which exceed $10 million. Chad Marsan is a professor of business law at Penn State. There's also a related term known as a thermonuclear verdict, which involves jury verdicts in excess of $100 million. The size of such verdicts has been growing. The average compensation awarded by juries for personal injury increased around 250% between 2009 and 2019, according to the Swiss Re Institute.

In 2023, there were 89 verdicts of more than $10 million, 27 of them more than $100 million. That's a record, according to Marathon Strategies. This is making insurers increasingly nervous. Our civil justice system should be predictable, stable, efficient, and these verdicts are not predictable. Rhonda Hurwitz is senior director for the American Property Casualty Insurance Association. She says these mammoth verdicts are often not driven by punitive damages, but rather for compensation for pain and suffering, things that are very hard to quantify. We're not saying that if there is a

legitimate injury that they shouldn't have their ability to receive compensation. Matt Webb is senior vice president for legal reform policy at the US Chamber of Commerce. What the concern is though is that when you look at verdicts in the nuclear category, there's not really any rational basis for where the numbers are coming from. I mean, literally numbers are being picked out of thin air. He and insurers argue the rise in nuclear verdicts tracks with ad spending by lawyers

and an increase in outside groups funding lawsuits as a form of investment. Others point to rising anti-corporate sentiment. Lawyers counter the high amounts reflect by lawyers and an increase in outside groups funding lawsuits as a form of investment. Others point to rising anti-corporate sentiment. Lawyers counter the high amounts reflect the value juries place on pain and suffering and life. Florida attorney, Curry Padgett, has won multiple jury awards of well over $100 million. But our founding fathers guaranteed the right to trial by jury of our peers because the rich and powerful

can't control a jury. It is an expression of the will of the people. Patrick Weigel, the attorney in the Exxon case, says insurers concerns our PR campaign. So obviously the insurance industry has an interest in trying to do whatever they can to denigrate significant jury verdicts. But appropriate or not, the growth in massive jury awards has had consequences. Insurers are covering less and premiums are going up. Dan Murray is with the American Transportation Research Institute. He says trucking has borne the brunt of this,

with premiums rising 15, 30, 40 percent a year in some cases. Total disconnection between insurance costs and safety data. It's sort of the Wild West out there. Numerous trucking bankruptcies, he says, cite increasing insurance costs. In New York, I'm Sabri Benishur for Marketplace. This final note on the way out today. There may or may not be, by the time you hear this, a deal in Congress to avoid a government shutdown that looms tomorrow come midnight. But a word here about something President-elect Trump has injected into the debate, the federal

debt limit. Trump said he wants it lifted now, no doubt because his tax plans will call for borrowing trillions more dollars over the next decade or so. And come January, Republicans will be in charge and thus responsible. Trump said in various interviews today he would like to see the debt limit done away with once and for all. That is interesting because regular listeners to this program will know that the debt limit

and the accompanying threat of default is used regularly by congressional Republicans as a political weapon. John Buckley, John Gordon, Noya Cardin, and the Parker Amanda Pichra, and Stephanie Seek are the marketplace editing staff. Amir Bibawe is the managing editor, and I'm Kyle Rizdal.

We will see you tomorrow, everybody. This is APM. You turned to Marketplace for up-to-the-minute news, for stories that show you the connections between global events and your personal economy. And you're not alone. Marketplace is the most widely consumed business and economic news program in the country. We're proud to make fact-based journalism freely accessible. And Marketplace investors make it all possible. Your year-end donation today will make a real

difference in our nonprofit newsroom and in the lives of millions of Marketplace listeners every single day. So please contribute what you can today at marketplace.org slash donate.