Here’s the problem: office occupancy rates today in many cities are at about 50% of their pre-pandemic levels. And interest rates are up substantially—the yield on the ten-year Treasury, as a benchmark, has jumped from around 1% to 4%. That means the capital cost of acquiring real estate has gone up sharply, while demand has gone down.

Because real estate is a long-term game, the effects aren’t immediate. And ultimately, the size of those effects will depend on whether 1) occupancy rates go back up, and 2) interest rates come back down. I wouldn’t bet on either happening quickly. As a result, the pressure on office real estate is certain to grow. Fortune spoke yesterday with Kiran Raichura of Capital Economics, who says his organization is predicting a 35% decline in office values by 2025. And because the causes are structural rather than cyclical, the market could take a long time to recover. How long? Perhaps not until 2040, he says.

Not all cities will be hit equally. Those with the lowest occupancy rates and highest costs—we’re looking at you, New York and San Francisco—will be affected most, while sunbelt cities with higher occupancy rates, lower costs, and a healthy inflow of new workers, will be affected less.

You can read Raichura’s analysis here. And then think about what the spillover effects of such a prolonged office slump might be. One thing to watch out for: a second wave of bank problems.

But the prospect of a crashing real estate market isn’t slowing the stock bulls. Long-time prognosticator Ed Yardeni believes the bull market in stocks will continue through the end of 2024, with the S&P 500 rising 6% to 20% further. 

More news below.

Alan Murray
@alansmurray
alan.murray@fortune.com

TOP NEWS

Ford’s price cuts

Ford shares slumped by almost 6% on Monday after the automaker announced steep price cuts for its F150 electric pick-up truck. Demand for pricey electric vehicles is starting to cool, even as manufacturers ramp up production. Ford projected in March that its EV division could lose as much as $3 billion this year. The New York Times

Meeting overload

Remote work led to more meetings, and yet the return to the office is worsening the problem of meeting overload. HR software developer Workday reported a 24% jump in meeting time after bringing its workers back, as more collaboration led to new ideas and more meetings. But all that collaboration is eating up time and forcing staffers to take work home. Employees increasingly have a “triple-peak work day” or productivity peaks before and after lunch and third in the evening. Fortune

Evergrande losses

China Evergrande Group, the property developer at the heart of the country's property crisis, reported an $81.1 billion net loss for 2021 and 2022, as the company delivered long-delayed financial results. Chinese developers like Evergrande struggled to complete projects and pay suppliers thanks to a burst property bubble and new government rules on leverage. Evergrande is now trying to restructure its offshore debt, with court hearings scheduled next week. South China Morning Post

AROUND THE WATERCOOLER

Millennial HR professionals are entering the C-suite, and their priorities reflect their lived experiences: ‘We spend a lot of time getting to know folks deeply’ by Amber Burton

Commentary: The EU A.I. Act can get democratic control of artificial intelligence–but only if open-source developers get a seat at the table by Shelley McKinley

Sensitive U.S. military information has been sent to Mali for years thanks to a simple typo. Now the Russia-friendly government will get access to it by Chloe Taylor

Workers might have to ditch the 9-5 for the 6-2 because of climate change, Oxford study says by Orianna Rosa Royle

Despite bosses’ ultimatums, finance is among industries with lowest office attendance rates by Paige McGlauflin and Joseph Abrams

This edition of CEO Daily was curated by Nicholas Gordon.