| | | | | | | Presented By OurCrowd | | | | Axios Markets | | By Aja Whitaker-Moore ·May 21, 2021 | | Good morning and TGIF, again! Was this email forwarded to you? Sign up here. Situational awareness: Existing home sales data for April is due out today. Earlier this week, housing starts for the month were lower than expected, amid soaring input costs. Send tips, or feedback to aja.moore@axios.com or hit me up on Twitter @AjaWMoore. (Today's Smart Brevity count: 1,296 words, 5 minutes.) | | | | | | 1 big thing: De-densifying the office |  Data: JLL Research; Chart: Will Chase/Axios The demise of the office was predicted in the early days of pandemic lockdowns. But the prospect of downtown business districts turning into modern ghost towns is now looking much less likely, writes Axios business editor Kate Marino. Why it matters: The U.S. office building market is over $2 trillion in size, and vacancies have ticked up, while rents have gone down, over the last year. But many companies are now planning their returns to the office, likely with a hybrid model that allows for more social distancing — a trend that will help offset declining demand for office space. - "The office sector overall is in the midst of an evolution. Remote work models will likely have a negative impact on office demand," Katie Vaz, managing director at real estate asset manager Clarion Partners, tells Axios.
Yes, but: While demand for the office space we once knew may be shrinking, one thing that's likely to offset the trend is a need for a higher average amount of space allocated to each person, Vaz says. - The technical term is "office de-densification."
The backstory: In 1990, offices offered an average of 325 square feet per employee. That declined to 196 feet by 2020, according to the commercial real estate company JLL. That course is now expected to reverse. - For health and safety reasons, employers are adjusting the office set-up for a smaller, hybrid workforce. That provides an opportunity — or even a requirement — for reimagining technology and space designs to fit new collaboration and communication patterns.
- The momentum toward de-densification actually began before COVID, but has been accelerated by the pandemic, says Will Silverman, managing director at real estate investment bank Eastdil Secured.
Be smart: Most office leases range from five to 20 years. The density and design changes will play out over many years as more leases roll-off. The big picture: Despite the initial panic, the national office vacancy rate rose somewhat mildly, by less than 1%, between the end of 2019 and the end of 2020, according to Moody's Analytics. - In the massive New York City market, effective office rents fell by 2.4% in 2020, much less severe than Moody's earlier expectation for an 8.6% decline.
- This year Moody's expects effective rents nationally to fall by 7.5%. That's significant but not as bad as the 8.9% decline in 2009 at the height of the financial crisis.
Of note: In an August 2020 KPMG survey, 69% of CEOs said they planned to downsize their office space. In March 2021, just 17% said they'll be downsizing. The bottom line: Many people want to return to the office. But the notion of what the office looks like — and what we do there — is still in flux. Go deeper. |     | | | | | | 2. Catch up quick | | JPMorgan Chase is working on a new employer-sponsored healthcare system (again) that will involve investing $250 million in new technologies and startups. (WSJ) The Conference Board Leading Economic Index has fully recovered from the declines of the past year, as well as exceeded its previous peak, growing 1.6% last month. (Conference Board) Unemployment benefits applications fell to 444,000 last week — the lowest level since March last year — but the figure is still more than twice as high as in the month before the pandemic. (MarketWatch) Supply chains in Asia could be impacted by new cases of COVID-19, particularly in Japan, South Korea, Taiwan and Vietnam. (CNBC) | | | | | | | | 3. Going for the gold |  Data: S&P Capital IQ; Chart: Will Chase/Axios Gold is back in vogue. After a selloff at the start of the year, prices have bounced 10% in less than two months, Kate writes. Why it matters: Gold is often seen as an inflation hedge, so its rebound signals growing concerns about whether the current round of inflation is transitory, as the Fed says it will be. Gold is also a safe haven asset for investors who want to rotate out of riskier plays. Reality check: Economic data surprises this last month have helped support a return to gold. - The huge miss on April jobs numbers, combined with a greater than expected uptick in the Consumer Price Index, have taken the shine off expectations for a smooth-sailing recovery.
On the flip side: Six months ago, with vaccines on the rise and serious inflation concerns in their infancy, "there was no reason to be in a safe haven trade like gold," Ed Moya, senior market analyst at OANDA, a trading services provider, tells Axios. Also, bitcoin: "Institutional investors appear to be shifting away from bitcoin and back into traditional gold, reversing the trend of the previous two quarters," JPMorgan analysts wrote in a research note this week. - "It is not clear what is driving this shift," they note, adding that investors may be seeking stability in the midst of the rapid losses in the crypto market.
Other factors at play include a weaker dollar, which is typically good for gold since it enhances gold's relative purchasing power. The dollar has turned lower against most major currencies in recent weeks, Axios' Dion Rabouin recently reported. - Gold demand from China is also reportedly surging, as the Chinese government has given the go-ahead for banks to stock up on the precious metal, Reuters reported last month.
What to watch: A taper tantrum? - "When the punchbowl gets smaller, it's risk-off for equities," says Moya. "That's when you'll probably see investors become a little more skittish on stocks, and continue to go into gold."
| | | | | | | | A message from OurCrowd | | AI tech is forever altering the $1T drug development landscape | | |  | | | | The $1T drug development industry is undergoing a seismic shift. CytoReason's AI platform models the human body at the molecular level to deliver life-saving drugs faster and more effectively. Now, you can invest in this groundbreaking tech at OurCrowd. Add CytoReason to your portfolio. | | | | | | 4. Climate initiative comes to finance |  | | | Illustration: Aïda Amer/Axios | | | | President Biden issued an executive order Thursday that directs agencies government-wide to launch or expand efforts to analyze and lessen economic risks stemming from climate change, write Axios Generate authors Ben Geman and Andrew Freedman. Why it matters: The order lays the groundwork for new oversight and mandates that would affect banking and other sectors. It signals growing concerns that the government lacks a sophisticated understanding of how global warming creates new or growing jeopardy for financial and government institutions and consumers. "Our modern financial system was built on the assumption that the climate was stable," said National Economic Council director Brian Deese. "And today it's clear that we no longer live in such a world." Details: Major components of the order, per a White House summary, include... - Ordering a strategy within 120 days to "identify and disclose climate-related financial risk to government programs, assets, and liabilities." It would identify "public and private financing" needed to reach net-zero U.S. emissions by 2050.
- It calls on the Treasury secretary, as head of the multiagency Financial Stability Oversight Council, to specifically analyze risks to financial system stability. That effort would bring ideas within 180 days to reduce risks, including agency steps to improve risk disclosures and stitch climate-related financial risks into regulation and supervision.
- Tasking the Labor Department with exploring how to protect pensions and assess how the Federal Retirement Thrift Investment Board weighs climate risk.
- Efforts to weave climate risk consideration into federal lending and procurement. They include potential new requirements on federal suppliers to disclose emissions and financial risks and ensure that agency procurement practices reduce them.
Go deeper | | | | | | | | 5. Charted: Private debt |  Reproduced from Preqin Pro; Chart: Axios Visuals Fundraising for private debt funds this year is on pace to cement the asset class's growing role in corporate finance, Kate writes. Why it matters: Private debt funds are unregulated pools of capital, managed by investors who lend the money to companies. They have grown rapidly in the post-financial crisis era, as traditional investment banks have pulled back on some of their riskiest lending. What's new: Private debt funds are tracking to top the average $103 billion raised annually in 2017-2019, and exceed any year before that, according to new data from Preqin. Yes, but: Last year's monster total of $148 billion might be an anomaly — for now — as investors sought loads of dry powder to lend to pandemic-stricken businesses. Go deeper into the evolution of the private debt market. | | | | | | | | A message from OurCrowd | | AI tech could save pharma industry billions | | |  | | | | The average drug costs millions and can take decades to develop. CytoReason dramatically cuts costs and timelines with its AI platform. Already, five of the ten largest pharma companies use CytoReason. Now, you can invest in this groundbreaking tech. See the possibility of CytoReason. | | | | | | Axios thanks our partners for supporting our newsletters.
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