WHQR's Kelly Kenoyer invited Mouhcine Guettabi to the WHQR studios for a chat about the economy this quarter. Their conversation has been edited for clarity and brevity.
Kelly Kenoyer: Mouhcine Guettabi from UNCW, thank you so much for joining us.
Mouhcine Guettabi: Thank you for having me.
KK: I wanted to ask you a bit about corporate rents. Some of my colleagues here at WHQR have heard rumors and anecdotes about restaurants letting go of workers because they can't afford their rents. Have you heard anything about changes to corporate rents, or anything along those lines in commercial areas?
MG: Not locally. I mean, we know nationally that the commercial real estate space has been one that's been under pressure for several months right now. Locally, at least vacancy rents have held up reasonably steadily. And we did not really see as much of the damage we keep reading about at the national level. However, if there are things that are starting to percolate, the data tends to lag a little bit. And so I haven't seen it, but it may be happening.
The other thing that's important to keep in mind here is when you've seen a business closure or a business failure, you've seen one, right? So it's difficult to extrapolate from specific cases, because we don't know what terms were agreed upon during the pandemic. We don't know if there was too much expansion during the pandemic, and people are starting to pull back right now. That's what we're seeing nationally, a number of sectors were in places where there was very fast growth, there seems to be a little bit of pullback now. And so I don't know where this falls within that broad landscape. It could be interest rate pressures and national pressures that are affecting these decisions. It could be decisions about specific sectors of the economy, or it just could be that the numbers don't work anymore. And so, yeah, tough to say.
KK: what are the national trends that you're seeing with commercial real estate?
MG: Well, I mean, it's just the vacancy rates are up, there are a lot of buildings that are selling for considerably less than they were bought for. We know that the remote work conversation is still ongoing. There are big cities that have gotten hit really hard, because they bought or invested in commercial spaces that they're not using, and they bought and or renovated or interest rates that are much higher than is sustainable. And so the math just doesn't work in a lot of these places. And so they're trying to figure out whether it means convincing workers to come back to the office, workers are resisting that or letting go of those spaces. But I think that there is that I'm not I don't want to say it's the next shoe to drop. But there has been a lot of concern about what that sector potentially tells us about the potential weakness that's hiding underneath the surface in the national economy.
KK: Well, what's the implication of that for the city's sort of recent purchase of the PPD building? That's a significant amount of square footage of commercial real estate that they now have in the northern section of downtown and they still own many of the buildings where they used to have their offices in downtown. So what are the implications there for our city?
MG: Yeah, well, that's, that's a really interesting question. I don't have any inside information, but I view it as a bet on the future of the city, right? And so I see the city as basically saying, we're bullish on the trends that we've seen in Wilmington, and we would like to kind of take ownership over the the future direction of it. And at least so far, Wilmington, obviously, as we've discussed in the past has been growing incredibly fast. And we don't have a ton of inventory for commercial space. And so obviously, time will tell, but it could be a decision to potentially free up space and make it available to potential investors.
From where we sit right now, it may turn out to be an incredibly smart decision, because it allows businesses to potentially come in and have space ready to rent if they reconfigure it, or if they're having conversations with players who may have considered Wilmington but did not have the right space for it. And so because everything that we hear is that there is this massive interest in the area, and clearly the thing that we are in shortage of, is space, right?
But I'm an economist, so I have to give you the other side. That clearly then exposes them potentially to these changing national trends. And if we are to enter a slowdown or something then clearly interest subsides. And so I think that it's it's an interesting decision. I'm not privy to how they're thinking about it. But I would view it as a bullish bet on the future of the Wilmington economy.
KK: Interesting. Well thank you so much for joining us, Mr. Guettabi, this was fascinating.
MG: Thank you for having me.
