- Investors believe storm clouds are brewing over the US commercial real estate market.
- 65% of surveyed investors believe the US office market is in for a steep crash, Bloomberg reported.
The US office market is in for a long, steep fall, according to investors surveyed by Bloomberg.
In Bloomberg's latest Market Live Pulse survey, 65% of investors said they believed the US office market would only start to perk up after undergoing a serious decline.
Investors also think there's a high chance that event could happen within the next year or so, with 44% saying they believed commercial real estate prices would bottom in the second half of 2024, while 72% of investors said they believed the sector could bottom before 2025.
The last year of rising interest rates has been precarious time for commercial real estate and the US office market, which has struggled as persistent work-from-home trends pressure office prices. Office vacancies hit an all-time-high of 13% this summer, according to data from the National Association of Realtors, and prices for those buildings could plunge as much as 35% over the next two years, per a forecast from Capital Economics.
The outlook for the broader commercial real estate market is similarly troubled. Commercial property prices have already sunk 16% since peaking in March of last year, according to an August estimate from the commercial real estate research firm Green Street.
Then there's the $1.5 trillion mountain of commercial real estate debt set to mature by 2025. Most of that debt is held by smaller regional banks, which are generally tightening their credit standards and pulling back on riskier lending amid the fallout from the Silicon Valley Bank collapse this year and accelerated deposit flight.
That, combined with higher interest rates, could lead to a debt storm brewing for commercial property owners. There's around $155 billion of commercial real estate debt at risk of default, according to a June MSCI report.
Big banks like JPMorgan and Goldman Sachs this summer were looking to dump some of their commercial real estate loans, Bloomberg reported in August. A crashing office market means banks could incur around $250 billion in losses, according to one hedge fund manager.