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U.S. Office Sale May Be on the Horizon

Colliers: The U.S. vacancy rate rose from 11% in late 2019 to 17% today, higher than during the 2008 financial crisis. As leases expire, it could mean more office sales.

NEW YORK – The pandemic put office-building owners under significant pressure as many employers shifted to remote work. Colliers’ data show the U.S. vacancy rate rose from 11% in late 2019 to 17% today, 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 that 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, while other loans were either extended or submitted to a special servicer for modified payment terms or foreclosure.

Landlords face a $72.7 billion refinancing shortfall between now and the end of 2025, according to CBRE estimates.

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

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