Dear Readers,
It’s Thinking Time! This week we cover unemployment in Asia, the demise of the business district, and Hilton’s expansion plans in China.
TBL Thinks is our way to summarize the most important paywalled, longer reads relevant to global macroeconomics, helping you cut through the noise. With that in mind, please enjoy.
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A Time Bomb is Threatening Economies Across Asia (WSJ) The youngest workers in Asia’s fastest growing economies are battling high rates of unemployment. Bangladesh has long been considered a development model in slashing extreme poverty, and has for the past decade averaged 6.5% growth a year. However, over the last few year, the country has seen youth unemployment climb to the highest level in three decades at 16%. India and China also recorded similar percentages, as did Indonesia (14%) and and Malaysia (12.5%) for young people seeking and failing to find work.
These figures represent people between the ages 15-24 looking to find suitable jobs, and are worse than the US, Japan and Germany where the young people are able to find jobs, but not as bad as Southern European countries such as Italy and Spain.
For countries that don’t have the manufacturing prowess of China, the unemployment figures pose the question of how can they continue to develop and what happens if they fail to do so. “Globally, unemployment among young people runs higher in the labor force as a whole” and competing with China means that countries need to level up to more complex, higher-value production leading to higher-skilled, better-paying jobs; not to mention the worldwide turn to machinery and AI over manpower.
Also to contend with as countries develop is the great labor mismatch—every year more young people in Asia pursue higher eduction and college degrees, and favor white-collar jobs upon finishing them—jobs which their countries do not produce in abundance. The global labor market is a state of transformation, and labor slack does not combine with AI automation to create inflationary pressures. We believe trade wars (inflationary) and labor slack (deflationary) will continue to dominate the headlines for years to come.
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A $557 Billion Drop in Office Values Eclipses a Revival of Cities (WSJ) Buildings losing tenants and going into foreclosure, abandoned projects headed to bankruptcy auctions, and commercial landlords defaulting on mortgages are becoming all too familiar as disparities across the US expose the troubles of commercial real estate and post-pandemic recovery of cities.
Aging business districts are contending with empty offices and slow return of workers in LA, Boston, and Chicago, while neighborhoods just blocks or miles away are thriving. Kevin Bender, executive managing director of Jones Lang LaSalle in LA describes this phenomenon as “flight to quality”—a movement not only to trophy assets, but also to trophy environments.
According to MSCI, office values in US central business districts have fallen 52% from their highs, with “San Fransisco, Manhattan, and core areas of Washington and Boston posting some of the biggest price declines among global metropolises since the pandemic”, while nationally the drop in value from the peak is closer to 18% in suburban markets or areas outside the traditional business core.
The period of 2019-2023 saw $557 billion in value being wiped from US offices because of falling demand, with lower-quality properties disproportionately affected. Companies trying to bring employees back into offices are now searching for office spaces in lower-crime neighborhoods with facilities like parks fitness centers, shopping, and restaurants around them. When will the writedowns occur? We believe they are mostly hiding in private markets, outside the banking system, nestled comfortably into the shadows.
China’s Empty Office Glut Supercharges Hilton’s Expansion Plans (BBG) The Hilton Group and its franchise partners have found a silver lining to China’s real estate crisis by converting empty and unused office spaces to hotels as the country faces a domestic travel boom. The hotel group recently opened its 700th property in Greater China and is expanding on the mainland, with an aim to add 100 more hotels to its network over the next few years and a pipeline of nearly 900 locations.
About 25% of the new hotels coming over the next two years will be developed through what the Hilton calls an “adaptive reuse” of developing office space into hotels instead of building from the ground up.
China’s commercial real-estate market is contending with a huge amount of oversupply, and vacancies are at a two-decade high in some cities, while rents continue to plummet. However, the country’s real-estate woes and economic slowdown have not affected its hotel boom as more Chinese consumers are choosing to travel within the country than abroad of late. China has another commercial real estate situation worth a critical eye, but the domestic travel boom speaks to the sheer volume of middle class consumption taking place within the country as it moves up the value-added chain.
Until next time,
TBL Thinks
Unchained empowers you to fully control your Bitcoin with a collaborative multisig vault, where you hold two of three keys and benefit from a dedicated Bitcoin security partner. Purchase bitcoin directly into your cold storage vault and eliminate exchange risks with Unchained's Trading Desk.
Unchained also offers the best IRA product in the industry, allowing you to easily roll over old 401(k)s or IRAs into Bitcoin while keeping control of your keys.
Don’t pay more taxes than you need to. Use code TBL for $100 off when you create an account.
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