Building Stress: Is Commercial Real Estate Another Crisis in the Making?

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Building Stress: Is Commercial Real Estate Another Crisis in the Making?

28 March 2024 / Report

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Today’s commercial real estate downturn is unlike any prior property crisis. The primary source of weakness stems from reduced office demand, not oversupply. With hybrid work here to stay, companies are cutting office footprints when leases expire. This trend has room to run, further weighing on office property prices.

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Commercial real estate (CRE) prices have fallen sharply across a range of property types since peaking in 2022. Higher rates are pushing up financing costs and weighing on prices of long-dated assets like real estate.
Office properties have been hit particularly hard because demand has soured amid hybrid work arrangements. As companies shrink their square footage needs, office property managers face declining rental income and record-high vacancy rates at a time when operating costs are also higher.
Sufficient demand destruction for office space could sow the seeds for rising borrower defaults and banking stress. The impact will likely vary widely by geography and by the type or class of properties.
Multifamily residential properties have much stronger fundamentals than office properties. Demand remains str

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