The future of office real estate is still in limbo. Investors are trying to understand how the growth of remote work and a possible recession will affect the demand for office space. The rising interest rates also has many office owners re-examining the viability of their investments as the cost of capital will hurt their NOI if they choose to keep and refinance a building or the sale price if they choose to sell. What has become clear is that the market for office leasing is not universal, some areas are doing much better than others. This has many owners and developers looking into new markets to reduce their risk of softening office demand.
Of the hottest office markets in the country, many are in conservative states. Cities like Atlanta, Nashville, Austin, Salt Lake City, and Phoenix have floated to the top of the list when it comes to demand for office space. Both companies and residents have been moving to these cities thanks to their lower cost of living and lower state tax rates. But investors looking to buy or build offices in these areas might have a less rosey opinion of these markets thanks to the recent Supreme Court decision to overturn Roe v. Wade.
The abortion debate is a philosophical one but the effects of allowing states to choose their own path when it comes to the right to terminate a pregnancy will have major economic implications. Unwanted pregnancies have a very real economic effect. A 2020 study from the University of Michigan found that women who had been denied an abortion experienced a 78 percent increase in debt and an 81 percent increase in the likelihood of bankruptcy and eviction in the five years that followed. Their credit score also fell, on average, and being forced to carry an unwanted pregnancy often brings huge disruption to career plans.
These negative consequences for this group will likely not be enough to affect an entire state’s economy but the perception of these laws to the business community could certainly slow down office leasing. Already companies are coming out with policies to support their employees that work in states with abortion bans. Many others including JPMorgan Chase, Disney, Apple, Meta and Bank of America have said that they will pay for the employee travel expenses if they need to go out of state for an abortion. Google has even gone as far as to said that they would allow any of their employees to move out of states where abortion is illegal.
So far there have not been any companies that have decided to move their headquarters but blue states are already looking to lure employers from states with abortion bans. California is putting incentives for companies moving from states with abortion bans into their budget. New Jersey Governor Phil Murphy even went as far as to write letters to businesses in Georgia and elsewhere telling them that their state’s ruling would harm their ability to “attract and retain top female talent.”
The pressure from the business community might even convince some states to change their stance on abortion. In 2016 North Carolina passed a controversial bill that limited the rights of transgender individuals. The ensuing boycotts cost the state’s economy hundreds of millions of dollars. Deutsche Bank AG and PayPal all reversed expansion plans in the state. Entertainers canceled concerts and the NCAA moved their March Madness games elsewhere. In response to the boycott major cities like Charlotte, Greensboro, and Durham all passed their own local ordinances that protected their transgender citizens from the bill.
The battle for abortion rights is far from over. The recent ruling has already been protested and is guaranteed to face legal challenges. But no matter what the outcome is or what your individual stance is on the issue, the likely economic consequences are hard to ignore. As if investing in commercial real estate wasn’t already complicated enough, now asset managers have our country’s divided political landscape to consider as well.
Map Quest
Our country varies widely when it comes to state laws about abortion. Here is a great resource for all of the state’s laws about when and how pregnancies can be terminated.
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Right now we are researching for an upcoming article about how technology is helping make the permitting process faster and easier. If any of you amazing subscribers is working on this or knows of someone who is, please let us know.
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