Investors brace for severe US office crash
Office prices in the US are due for a crash, and the commercial real estate market faces at least another nine months of declines, according to Bloomberg’s latest Markets Live Pulse survey.
About two-thirds of the 919 respondents surveyed by Bloomberg believe that the US office market will only rebound after a severe collapse. An even greater majority says that US commercial real estate prices won’t hit bottom until the second half of 2024 or later.
That’s bad news for the $1.5 trillion of commercial real estate debt that according to Morgan Stanley is due before the end of 2025. Refinancing it won’t be easy, particularly the roughly 25% of commercial property that is office buildings. A Green Street index of commercial property prices has already fallen 16% from its peak in March 2022.
Commercial property values are getting hit hard by the Federal Reserve’s aggressive tightening campaign, which lifts a key cost of owning property — the expense of financing. But lenders looking to offload their exposure now are finding few palatable options, because there aren’t many buyers convinced the market is close to a bottom.
“Nobody wants to sell at a huge loss,” said Lea Overby, an analyst at Barclays Plc. “These are properties that don’t need to be sold for long periods of time, and that means holders are likely to delay a sale as long as they can.”
Adding to the trouble is stress among regional banks, which held about 30% of office building debt as of 2022, according to a March report from Goldman Sachs Group Inc. Smaller banks saw their deposits shrink by nearly 2% over the 12 months ended in August, according to the Fed, after Silicon Valley Bank and Signature Bank collapsed. That translates to less funding for the banks,
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