Tags: offices | commercial real estate | interest rates | work from home

Offices at Risk From Interest Rates, Work from Home

Offices at Risk From Interest Rates, Work from Home
Downtown Chicago office buildings (Dreamstime)

Tuesday, 20 June 2023 01:00 PM EDT

Risks in commercial real estate (CRE), particularly for the office sector, have been exacerbated by rising interest rates, people choosing to work from home, and banking stress, according to a report by Moody's Investor Service Tuesday.

Office remains "particularly exposed" as a large share of employees continue to work from home, creating default risk for office real estate loans, which represent $736 billion, or 16.7% of CRE debt outstanding, the report added.

Some strained commercial properties underlying commercial mortgage-backed securities (CMBS) – which represent 16% of CRE debt outstanding – are also likely to have trouble with refinancing.

Moody's analysts expect an economic slowdown to dent revenue growth that had been driven by a post-pandemic demand recovery across multi-family, hospitality, retail and industrial sectors. Analysts expect CRE values in all sectors to soften as economic activity decelerates.

"A broad-based CRE downturn would significantly hurt banks, which hold about half of all outstanding CRE debt and the largest share maturing in 2023-2026," Moody's said.

In April, some of the largest U.S. banks singled out office commercial real estate as an area of growing concern while reporting first-quarter results, with property values falling and more borrowers defaulting on their loans amid rising interest rates and a slowing economy.

Stress in the commercial real estate sector has the potential for broad implications for banks and the economy, as losses emanating there can tighten credit availability and exacerbate a downturn.

© 2024 Thomson/Reuters. All rights reserved.


StreetTalk
Risks in commercial real estate (CRE), particularly for the office sector, have been exacerbated by rising interest rates, people choosing to work from home, and banking stress, according to a report by Moody's Investor Service Tuesday.
offices, commercial real estate, interest rates, work from home
236
2023-00-20
Tuesday, 20 June 2023 01:00 PM
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