The fallout from empty offices is coming. Here’s where investors could see the pain

by | Apr 14, 2023 | Financial

As concerns about regional banks roiled markets, investors weighed another threat: commercial real estate. The theory goes something like this: Office property values are falling — with more to come. Workers have been slow to head back to the office , and companies may look to cut costs as the economy weakens by exiting office leases. If this happens, it would put further pressure on the value of office space, which has already been challenged by rising interest rates. Also, layered on top of the property value pressure, are the tightening credit conditions brought on by the recent turmoil in the banking sector. There is no doubt this scenario is a toxic mix for the capital-intensive real estate industry. Every year a large amount of debt needs to be refinanced. The Mortgage Bankers’ Association said a quarter of office building mortgages will need to be refinanced this year alone. Funding also is needed to build or upgrade existing properties or to make new acquisitions. At the moment, many experts say the real estate market isn’t causing trouble for banks, but fears about the financial system are likely worsening conditions in real estate because liquidity is being reduced. Delinquencies rema …

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