Bloomberg - Evening Briefing - The great emptying

Bloomberg Evening Briefing

Let this sink in: Not long from now, almost one-quarter of all US office space may be vacant. And if work-from-home—the key culprit—persists, commercial-property values will be further decimated by up to $250 billion, Moody’s warns. When combined with the impact of lower rents and lease turnovers, the vicious post-pandemic cycle will reduce revenue for office landlords by as much as $10 billion. That in turn could translate into a quarter-trillion dollars of “property value destruction,” Moody’s officials said. The figures illustrate the gloomy prospects faced by property owners and lenders as employers continue to jettison square footage or shift from multiyear leases to shorter-term and more flexible co-working arrangements. A full 85% of North American organizations polled by brokerage Jones Lang LaSalle have implemented hybrid work, and occupancy across offices in major US cities is stuck at about 50% of pre-pandemic levels. Wavering demand and increased borrowing costs have slammed office valuations, especially among older buildings. “The argument for maintaining or even increasing remote work practices remains compelling for many businesses,” Moody’s said. “If productivity remains stable and costs can be reduced by forgoing physical office spaces, the rationale for mandating in-office attendance diminishes.” 

Here are today’s top stories

The US Federal Reserve’s higher-for-longer interest rate strategy aimed at sticking a soft landing is bearing more fruit. Wide-ranging economic data illustrates a downshift in growth over the first half of the year, both thanks to the central bank’s stoicism and still-elevated inflation. Personal spending fell by half a percentage point to an annualized 1.5% in the first quarter, the government said. Separate releases on Thursday showed declines in orders and shipments of certain business equipment, the widest trade deficit in two years, weakness in the job market and a slide in homebuying. “The economy is operating in low gear in the first half of 2024 after above-trend growth in the second half of 2023,” said Bill Adams, chief economist at Comerica Bank. 

The long era of easy profits in private equity may be gone. This appears to be the signal from Goldman Sachs, which is turning to the drudgery of earnings growth. Marc Nachmann, head of the Wall Street giant’s money-management arm, has joined the chorus of industry leaders declaring the buyout business has passed a critical juncture: the period of profits driven by financial engineering and “multiples expansion” is over. To that end, Goldman is bringing in corporate muscle, hiring Darius Adamczyk—the former head of Honeywell International—to parachute into the portfolio companies the bank works with and help fix their operations.

In a 5-4 vote, the Supreme Court tossed Purdue Pharma’s $6 billion opioid settlement, nixing a deal that would have funded opioid epidemic relief efforts in exchange for protecting the company’s billionaire owners from lawsuits alleging they helped fuel America’s addiction crisis. The court opened a new chapter of uncertainty for Purdue, holding that the accord would improperly shield its owners—members of the billionaire Sackler family. The family had agreed to give up ownership of the company—the maker of painkiller OxyContin. In a separate ruling, the court’s six Republican-appointed justices put new restrictions on the Securities and Exchange Commission.

A Tufts University employee removes the Sackler name from a Boston building in 2019. Photographer: Boston Globe

Talks between South Africa’s two biggest political parties on forming a cabinet are said to have stalled after the African National Congress withdrew an offer to appoint a member of the smaller Democratic Alliance as trade and industry minister. The disagreement is delaying a deal over the appointment of ministers almost a month after the election cost the ANC its parliamentary majority for the first time.

Beijing misjudged the impact on its relationship with Europe when it provided support for Russia’s war on Ukraine, America’s top diplomat in China said. “I think the Chinese have miscalculated,” Ambassador Nicholas Burns told Bloomberg Television on Thursday. “The Chinese did not understand the core value that we place in our current world on peace and unity in Europe itself.” The European Union is now acting in “outright opposition” to China’s support for Moscow, added Burns, who took up his post in the Asian nation days after the Kremlin’s full-scale invasion. The EU and the North Atlantic Treaty Organization have both called China a systemic rival “in part because of this,” he said.

Nicholas Burns Source: Bloomberg​​​​​

Nokia is said to be exploring a potential acquisition of Infinera, a maker of optical telecommunications equipment. Helsinki-based Nokia has been studying the feasibility of a deal for US-listed Infinera, and an announcement could come within days. Shares in Infinera have risen 15% over the last 12 months, giving the company a market value of about $1.2 billion.

Customers of major US telecommunications companies including AT&T, T Mobile and Verizon have been reporting problems connecting to their networks while outside of the country. Verizon confirmed on Thursday that a “third-party communications provider” is having issues making voice and data connections with US-based customers traveling overseas. Verizon says it’s “actively working” with its roaming provider to resolve the issue.

What you’ll need to know tomorrow

A Bad Omen in Morocco for Global Food Supplies

Mohamed Sadiri has farmed the same 3 hectares in western Morocco since 1963, and he’s never seen the land this parched. Wheat yields plummeted last year to 1 ton per hectare, his smallest harvest ever, as the worst drought period in three decades envelops the North African nation. Sadiri is among 1.2 million grain farmers suffering the brunt of climate change in Morocco, where the frequency of droughts has quintupled this century. But the impact will ripple far beyond its borders: This is why the rest of the world should pay attention.

A cereal field in Berrechid, Morocco Photographer: Fadel Senna/AFP/Getty Images

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