Don’t panic. I’m losing a lot of deals with venture backed start-ups right now. I’m sure you’ve lost a few too. It’s in vogue. Many are being instructed to survive an 18 month VC winter. We’ll continue to see headcount reductions at these companies, but the most important thing for them and us to do right now is what Jim Valvano’s wolfpack did in 1983, survive and advance. In my little world, its taking a few proposals on any given space to get a lease done for office space, while good, quality PDR space and Lab space continues to fly off the shelves. The aerospace market is also crazy hot. Turns out, hard engineering problems are still easiest to solve in-person. However, I’m beginning to understand how the generation of brokers above me navigated the dot-com bust, and what hustle really means to achieve an office deal in an uncertain marketplace.
San Francisco’s return to office picture continues to be an unenthusiastic whimper. At this point the leaders of the city really need to step up and cut red-tape. Show that downtown is still a wonderful place to work (it is) and make it easy to do business in San Francisco (its not). According to figures from Kastle Systems, office-occupancy rates in Dallas, Houston, and Austin were between 52% and 59% prior to the July 4th holiday. In San Jose and San Francisco, the rate was 35%, and in Philadelphia, 38%. Kastle is attributing the different levels of return to work with the cultures of the various workforces. In Texas, people are able to drive to work in their own “airtight pod” then work comfortably in their offices, while San Francisco and New York rely more heavily on public transit, which have been more affected by crime and the pandemic. Gas prices are not helping when it comes to worker’s readiness to commute across all markets.
San Francisco has been pleasant, retail activity seems to be on the right track, and there is a new District Attorney in town reviewing all of the drug cases that were handled (i.e. mismanaged) by the former DA Chesa Boudin. Outlook for office space, however, remains tricky. The flight to quality seems to be cooling and there is tremendous downward pressure on rents with subleases continuing to hit the market (Salesforce just put half of their space at 50 Fremont on the market). The few weeks following the 4th of July holiday tend to be full of family travel, before the end of year push.
Chamath Palyhapitia — Founder of Social Capital, former part owner of the Golden State Warriors, believes that we are in a supply-side recession. We effectively stopped goods and services for 2 years and demand never really cooled, yet consumers found alternatives. Movies at home, Amazon rather than shopping, DoorDash instead of going out, Peloton instead of going to the gym. Worldwide, factories and refineries shut down, and as we have re-opened, none of the businesses have been able to fully regain their previous output levels. Companies are having trouble finding talent, which should eventually lead to raising wages, but we are not seeing that occur in the numbers quite yet. There are 11 million job openings in America currently and roughly 5 million able bodied Americans are sitting on the sidelines according to our labor participation rates that is lingering 3% below the Great Financial Crises in 2008–09.
Turkish government announced it has discovered a massive amount of rare earth minerals, to the tune of 694 million tons of rare earth reserves. Today, China controls between 70 to 90% of all rare earth metals on the planet, hinging the fate of our entire technological infrastructure on an increasingly-hostile foreign superpower that has already used its monopoly to push around neighbors. Elon Musk is on record saying that lithium ion batteries are the new oil.
Things are likely to be more affordable for American tourists visiting Europe this summer, with the exchange rate between the euro and the dollar now about equal. It’s the first time since 2002 (in the early years of the euro’s existence) that the ratio came close to 1:1, with the currency hitting 1.0005 vs. the greenback early this morning. Many analysts now forecast the euro to hit parity today or in the coming sessions, which may make for some cheap vacations, but could come at a cost of global economic stability.
Looking to tame inflation, the Fed is on track to continue hiking interest rates by 75 bps per meeting, in comparison to the ECB, which is still hesitant to get too aggressive. EU recession fears are more pronounced than they are in the U.S., especially given the grim energy outlook and the shutting of the Nord Stream 1 pipeline for annual maintenance. Similar to the situation in Europe, dovish policies in Japan are keeping the yen under pressure, leading to a strong wave of constant dollar buying in the forex markets. The yen and the euro are by far the most traded currencies against the dollar, so when both are weak, it makes it harder for anything else to rival the greenback.
While we are seeing wild inflation prints stateside, Europe and the rest of the world are also in tenuous situations. With so much negativity in the news, I need to remind myself that it’s still the best time period to live in as a human being and I’m emboldened by the great work that many are doing in spite of the constant negative news we seem to have been bombarded with for the last 2+ years. The news in our little world will start turning positive soon.
Take care and be well.
