Important Takeaways:
- American offices are half-empty. That could be the next big risk for banks
- From Dallas and Minneapolis to New York and Los Angeles, offices sit vacant or underused, showing the staying power of the work-from-home era. But clear desks and quiet break rooms aren’t just a headache for bosses eager to gather teams in person.
- Investors and regulators, on high alert for signs of trouble in the financial system following recent bank failures, are now homing in on the downturn in the $20 trillion US commercial real estate market
- Just as lenders to the sector grapple with turmoil triggered by rapidly rising interest rates, the value of buildings such as offices is crashing. That could add to pain for banks and raises concerns about damaging ripple effects.
- The US market looks most vulnerable. Yet the European Central Bank and Bank of England have also recently warned of risks tied to commercial real estate as the outlook for prices deteriorates.
- About $270 billion in commercial real estate loans held by banks will come due in 2023, according to Trepp. Roughly $80 billion, nearly a third, are on office properties.
- Plummeting valuations will make refinancing tougher for property owners, who are likely to face requests from banks to put up more equity. Some owners — especially of older, less desirable office buildings — might decide it’s not worth the expense given the market climate and simply hand back the keys.
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