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Distressed Sales in Office Market Slow to Start

Despite higher office building vacancy rates, sales on distressed commercials properties have been slow to start. With leases set to expire soon, that could change, experts say.

NEW YORK – After the pandemic and the push to remote work, office building vacancy rate in the U.S. increased from 11% in late 2019 to 17% today, the consulting firm Colliers found. That’s higher than at any point in the 2008 global financial crisis.

Even with those high vacancy rates, however, forced sales have been rare, with only 3.5% of 2023's office deals involving a distressed seller, according to an MSCI Real Assets analysis.

Of recent deals, only 2.7% have involved distressed sellers. With leases set to expire, that could change, as companies downsize their spaces by up to 40% when they seek to renew. Lenders also want to avoid forcing sales in a weak commercial real-estate market, which could increase potential losses.

Data from real-estate analytics firm CRED iQ found of the $35.8 billion of office loans that came due in the commercial mortgage-backed securities market last year, only 25% were paid off in full. Other loans were either extended or submitted to a special servicer for modified payment terms or foreclosure. CBRE estimates landlords face a $72.7 billion refinancing shortfall between now and the end of 2025.

Source: Wall Street Journal (03/17/24) Ryan, Carol

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