WHY ARE SO MANY RENTERS STAYING PUT?

While the mainstream media have obsessed for the last month over the 100-day milestone in Trump's second term, the truth is that civilians nationwide have been dealing since last November’s election with the traumatic realization that we're stuck with this corrupt convict for 4 more painful years. We all knew from the last time that he was 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 crooked clown could sink. We grossly underestimated the unfettered damage which our favorite felon enabled by a slumbering and submissive Congress and served enthusiastically by an over-caffeinated egomaniac could do this time around.

As the pathetic parade of Foxified cabinet nominees played out and the crypto criminal schemes took hold, accompanied by demonstrable instances of demented outbursts, crazy posts and a slew of executive orders which needed to be patiently explained to the Sharpie-wielding signer, most business people as well as the stock markets began to more fully appreciate what a mess we were in. And, of course, the on-and-off tariff nuttiness was simply some additionally insane icing on the cake.

And now we’re 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 beginning to see 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.

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 physical facilities where hard-pressed developers with empty floors are offering great new terms and buildouts, and reluctantly acknowledging – once and for all – that the days of having the whole team in the office 5 or 6 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 for lunch on Fridays 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 landlords in the commercial real estate market – especially for the owners and operators of older 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 which isn’t likely to be questioned or 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.

However, unlike relocating a business, renter families – apart from the basic financial concerns in making a move - also have to deal with moving costs, school selection and enrollment issues for any children, security concerns in various neighborhoods, the need to come up with a sizable cash downpayment in highly competitive markets, scarce for-sale 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 tirades, taunts, 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. In a typical year, half the renters whose leases come up for renewal will move instead. Those percentages are now plummeting.

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 millions of individual and family 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 increases in their rents as their landlords take advantage of their situation to raise rents, 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 while this year the number has shrunk to about 30%. This means that thousands of individuals and families aren’t moving onward and typically upward in most major cities. They’re standing pat even if they’re not happy about it.

While urban mayors may brag about this phenomenon as evidence that their cities aren’t losing population to their surrounding suburbs and other cities, the reduced movement of renters has serious implications for business builders and operators. The paralysis in the traditional pipeline which annually frees up large numbers of lower-cost housing units means that incoming populations (university students, recent grads, and inbound prospective employees at all levels, among others) will have a much more difficult time finding entry-level and affordable housing in most major urban 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 simply the overt unconstitutional executive orders or the malicious multitude of other illegal actions 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 of citizens 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 as things in Washington continue to worsen 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.