Spaced Out: Why Startups Are in a
Better Rental Position Than Their Workers
The
uncertainty created by the Trump administration has caused people to stay put.
Result: in big cities, residential rents are rising.
EXPERT OPINION BY HOWARD TULLMAN, GENERAL MANAGING PARTNER, G2T3V
AND CHICAGO HIGH TECH INVESTORS @HOWARDTULLMAN1
May 20,
2025
While the media have
obsessed for the last month over the 100-day milestone in Trump’s second
term, civilians nationwide have been dealing with the traumatic realization
that we’re stuck with this corrupt convict for nearly four more painful years. We
knew from his last time in office just how screwed we were likely to be,
although no one really understood how bad it could get, how flagrant and overt
the grifting would be, and just how low this clown could sink.
We also grossly
underestimated the unfettered damage that our favorite felon, enabled by a submissive
Congress, could do this time around. The on-and-off tariff nuttiness, especially with China, is a prime
example—consumer prices have no place to go but up.
We’re now beginning
to see secondary reactions and systemic changes across the broader economy as
the consequences of this calamity start to spread from the business community
to the heads, hearts, and decisions of the public at large. Office and apartment
lease activities are akin to canaries in the coal mine and serve as leading
indicators of consumer and business confidence. We’re seeing dramatic changes
in both the commercial and the residential marketplaces.
Things are looking up
for business lessees, but it’s going to be a few difficult years for apartment
renters.
The new reality of office
leasing, and office life.
I have spent countless
hours over the last year with entrepreneurs who are angry with their landlords
and fully intent on exiting their leases, moving to new smaller spaces where
hard-pressed developers with empty floors are offering great new terms and buildouts.
CEOs and senior managers are reluctantly acknowledging – once and for all –
that the days of having the whole team in the office five or six days a week
are long gone.
Pulling your people in
so they can sit morosely at their desks staring at screens on Zoom calls is a
costly waste of time and a culture killer. All the free pizza in the world on
Fridays for lunch won’t get the job done. Managing your people’s time these
days is like trying to nail Jell-O to a tree and just as slippery and futile.
So, while times may seem
tough for commercial landlords – especially operators of Class B buildings
with crappy views, tired carpets, slow elevators and porous security – the good
news for the tenants and brokers is that there will be plenty of churn, lots of
opportunities and considerable movement for quite some time. Even more
importantly, from a business standpoint, and given the likely cost savings,
it’s a pretty simple decision and one that isn’t likely to be second-guessed by
anyone’s board or investors. While it’s true that these are ridiculously
uncertain times for companies all across the country, reducing your overhead
and shrinking your infrastructure still looks like a smart bet.
The conundrum facing
residential renters
However, unlike
relocating a business, renter families – apart from the basic financial
concerns in relocating – also have to deal with moving costs, school selection
and enrollment issues, neighborhood security concerns, the need to come up with
a sizable cash downpayment in highly competitive markets, scarce inventory, and
other questions around commuting and transportation.
It’s never an easy
process to pick up and move, but there’s no question that the shaky and
uncertain economic climate constantly roiled by the Orange Monster’s tantrums,
tariffs and reprisals has made consumers far more wary of making significant
new commitments. These are folks who had planned to move, they’d love to move,
and they basically can’t make a move now.
Apartment renters – with
and without families – are increasingly afraid to make any major life changes
and decisions right now. Fears around the economy, job security, tariff
implications, and even their employer’s survival are keeping renters largely locked
in place with no alternatives. Gallup just reported that almost 75% of U.S.
employees have experienced serious changes in their workplaces in the last
year.
And, if the compounding
anxiety wasn’t ugly enough, their lease renewals are going to reflect large and
painful rent increases as their landlords take advantage, avoid the costs of
cleaning up and refreshing apartments for new tenants, and also try to partially
pass along the very sizable hits they’re going to be taking in terms of their
own real estate taxes.
This is why we are
seeing a significant and surprising decrease in the number of individual
renters moving to new apartments, condos and houses while the commercial
markets are bustling. Typically, on an annual basis, the traditional rental
turnover has been about 50% of all the expiring leases; this year the number
has shrunk to about 30%. This means that thousands of renters aren’t moving
onward and typically upward in most major cities. They’re standing pat even if
they’re not happy about it.
The lack of turnover isn’t
a good thing for the economy.
While urban mayors may
brag about this phenomenon as evidence that their cities aren’t losing
population to surrounding suburbs and other cities, the reduced movement of
renters has serious implications for business builders and operators. The
paralysis in the traditional pipeline means that incoming populations
(university students, recent grads, and inbound employees at all levels) will
have a much more difficult time finding entry-level and affordable housing in
most major cities. Attracting new talent to your business wherever you’re
located is going to be tougher and more costly on both ends of the equation.
The bottom line is that
it’s not just the overt unconstitutional executive orders which are costing
hundreds of thousands of employees to lose their jobs that are causing the most
painful long-term disruptions and permanent dislocations in the economy. It’s
the spreading malaise, despair, fear and uncertainty driven by Trump’s
indifference, ignorance and growing dementia that are paralyzing millions and
holding them and their families back.
We’re already seeing the
results in the rental markets, but it’s only a matter of time until the
problems spread to other verticals and begin to impact and preclude every kind
of capital expenditure, long-term commitment, and investment decision.
No one signs up
willingly for a cruise on a sinking ship. Travel and tourism are already in the
toilet. Bigger problems are right around the corner and there’s no relief in
sight.
