The Blubber

A severe crash in prices is coming for US office properties, per Bloomberg.

The United States is on the verge of an impending crash in office prices, and the commercial real estate market is expected to undergo at least another nine months of decline, as indicated by Bloomberg's latest Markets Live Pulse survey.

Approximately two-thirds of the 919 respondents surveyed by Bloomberg foresee a recovery in the U.S. office market only after a substantial downturn. A larger majority anticipates that commercial real estate prices in the U.S. will not reach their lowest point until the second half of 2024 or later.

This poses a challenge for the $1.5 trillion of commercial real estate debt due before the end of 2025, according to Morgan Stanley. Refinancing this debt, particularly for about 25% represented by office buildings, is expected to be a daunting task. A Green Street index tracking commercial property prices has already experienced a 16% decline from its peak in March 2022.

The Federal Reserve's assertive tightening measures are significantly impacting commercial property values, raising the costs associated with property ownership, particularly financing expenses. However, current lenders seeking to reduce their exposure are encountering limited options due to a lack of buyers convinced that the market is nearing a bottom.

Lea Overby, an analyst at Barclays Plc, noted, "Nobody wants to sell at a huge loss. These are properties that don't need to be sold for long periods of time, and that means holders are likely to delay a sale as long as they can."

Complicating matters is the stress among regional banks, which held approximately 30% of office building debt as of 2022, according to a March report from Goldman Sachs Group Inc. The Fed reported a nearly 2% shrinkage in deposits for smaller banks over the 12 months ending in August, following the collapse of Silicon Valley Bank and Signature Bank. This reduction in funding for banks diminishes their capacity to lend.