Planning Briefs
Office Space Reckoning May Trigger Turmoil In Commercial Real Estate
Published Wednesday, October 18, 2023 at: 2:13 PM EDT
Office-space delinquencies tripled in the first six months of 2023, and office-space landlords and investors through mutual funds, retirement plans, and other packaged products must be alert to the following:
Delinquencies on office-space mortgage loans averaged 10 times the other four subcategories of commercial real estate (CRE). Lodging, second worst of the five subcategories of U.S. CRE, in the first six months of 2023 experienced a 141% rise in delinquencies. That was bad, but only half the 3.1% delinquency rate on office-space mortgages. Comparatively, multifamily home, industrial production, and retail CRE delinquencies were fractional. Clearly, post-Covid America needs much less office space. With 46% of mortgages on office space maturing between 2023 and 2025, rates post-pandemic have soared and banks have tightened their loan standards in recent months.
These are some of the key observations of Erin McLaughlin, an expert on office-space and commercial real estate and senior economist at The Conference Board. In an October 11 presentation to corporate leaders at large companies, Ms. McLaughlin painted a grim outlook of the office-space segment of CRE.
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