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The U.S. restaurant industry has been facing coup after coup since lockdowns and indoor dining restrictions were instituted all over the nation, forcing several owners to permanently close their doors. The meltdown of the industry led more than 100,000 eateries to close in 2020 and many more are still on the brink, as the health crisis narrative is still lingering in America. Authorities are constantly being criticized for imposing draconian bans that they don’t even follow, as well as enabling the downfall of hundreds of thousands of businesses without properly measuring the consequences this will have on the economy.
While these businesses are shut down for good, more employees are being laid-off, aggravating the labor market crisis and its prospects to keeping adding workers back to their posts. Additionally, the commercial real state market has been absorbing the impacts of these closures since all of the space that is being emptied probably isn’t going to be occupied at the same rate ever again. In short, the collapse of the restaurant industry is setting the stage for a commercial real state collapse of epic proportions, and that’s what we talk about in this video.
Every day it passes by, more announcements of restaurant closures keep popping on the news. Prior to 2020, The United States used to have over 660,000 restaurants across its territory. In a recent op-ed piece, Adam Piper has affirmed that unreasonable, unnecessary, and hypocritical actions have pushed more than 100,000 restaurants to close and endangered countless others. At this stage of the collapse, according to Bloomberg, the current figure for restaurant closures is even bigger. A new survey released by the National Restaurant Association disclosed that from September to December, 10,000 more closures were registered, totaling a nationwide tally of over 110,000 permanent or long-term closures, which means one in six U.S. eateries is now gone. The Association is warning that there will be more carnage in the months ahead as the industry grapples with the devastating impacts of the health-crisis-induced recession.
The mass closures portray a clear picture of what an economic depression looks like. And now that hundreds of thousands of restaurants are sitting empty, while tens of thousands of others aren’t making enough revenue to afford their rent, the stage has been set for a commercial real estate disaster of epic proportions. Evidently, the restaurant vacancies are added to the millions of square feet of office and retail space that are also not being productive due to new work-at-home arrangements and the growing online shopping trend that triggered the bankruptcy of hundreds of thousands of brick-and-mortar retailers. That’s why this imminent commercial real estate nightmare is being called by financial analyst Lee Adler as “a monster in the room”.
According to Adler, the losses some of these sectors are about to face will be the final blow to their survival. He said to believe that even though big institutions of the industry are overpriced and overvalued right now, they will produce enough income to get by. But office and retail will never again generate the income they did before people began moving to online shopping. Most will need to be repurposed. Many will be demolished. Their value is land only, and even that is depreciating. Adler projects that office buildings that are now only 50% occupied might lose 100% of their value Even at 75% occupancy, property owners won’t be able to pay the mortgages. Consequently, banks will also face enormous losses, just as it happened in 1988-92, “only this time, there will be no recovery,” he noted.
Markets that once were more on the affordable side are becoming increasingly less affordable as prices are fast climbing. An Attom Data Solutions study has found that by the end of 2020, the average price of homes in 55 percent of the counties in the nation was considered less affordable to the average wage earner than they have been historically. Another of the Fed’s unintended consequence of hurting those that are least able to afford it. This situation already exposes the effects of hyperinflation in prices. Although the Fed has been massively purchasing bonds to try to keep the markets afloat, its money printing-frenzy has backfired and now we’re in the middle of the most splendid real market bubble this country has ever seen. Considering policymakers will continue to launch more money into the system, this bubble will only inflate further and further, which will, of course, make the crash much more disastrous in scope and size. Everywhere we look, we can see that the dominoes are starting to fall, but we’re still in the very early chapters of this ravaging economic collapse.”