Defaults on commercial real estate loans are rising as many workers stay remote
Defaults on commercial real estate loans are rising as many workers stay remote
For the past 18 months or so, there’s been a steady drip-drip of reporting on how work from home is hurting commercial office space.
And we just got another data point about just how badly: More owners of office properties are delinquent on their loans, according to new data from the real estate analytics firm Trepp. The company reports that in May, more than 3.38% of commercial office loans are seriously delinquent — that’s up from a year ago.
And the outlook for office building owners might get worse before it gets better.
If the last few years have taught us anything, it’s that it’s really hard to know if and when more people will come back to offices. If you own an office building, the bank holding your loan probably doesn’t like that uncertainty, per Kevin Fagan at Moody’s Analytics.
“There’s a lot of skepticism and uncertainty that drives down the ability to get debt financing if you’re an office owner,” he said, adding that even more office building owners are likely to miss payments in the months ahead.
Plus, when they refinance, they’ll do so at higher interest rates, said Mark Vitner, chief economist at Piedmont Crescent Capital. “We’re very much in the early innings of this.”
If you’re a renter, you might be able to get a better deal on space right now. But Vitner added that most office renters aren’t jumping in just yet.
“It’s not just the renters that are on the sidelines,” he said, “but people that might be interested in buying an office building and repurposing it or refocusing it.” And they’re all waiting for the market to drop even further, Vitner said.
There is one bright spot where developers are making investments, according to Georgia Institute of Technology urban design professor Ellen Dunham Jones: the suburbs.
“They’re going in and really trying to now provide them more urban amenities in those places that they never had before,” she said.
Things like housing, outdoor spaces, restaurants and shops as developers bet that more people might come back to the office if it’s a bit closer to home, Dunham-Jones said.
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