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Back to the Office?

November 6, 2023 | Posted in: Wealth Strategies

The financial press is always loaded with varying opinions regarding the likely path forward for the economy and one of today’s hot topics is whether we will experience a “hard” or “soft” landing as a result of the FED’s efforts to reduce inflation by slowing the economy. In addition to many other factors, one piece of the puzzle is the outlook for commercial real estate, and in particular, the troubled office sector. As shown below, office vacancies are at record levels both in the U.S. and worldwide.

Roughly 41% of office mortgages mature in 2023 and 2024 and many will be difficult to refinance given vacancies and higher interest rates that have in many cases eliminated the owner’s equity. While the office segment only represents about 16% of total commercial real estate, it will be particularly important to monitor its health as this sector affects the vitality of some urban cores, the health of lenders such as regional banks, and the market for commercial mortgage-backed securities.