Source: Golden Ten Data
According to a recent survey by foreign media, this type of real estate in the US is likely to seriously collapse. Morgan Stanley warns that it may take years for the pain of high interest rates to penetrate owners...
According to the latest “Markets Live Pulse” (Markets Live Pulse) survey by foreign media,Investors believe that US office prices are about to collapse, and that the commercial real estate market will face at least nine months of decline.
Of the 919 respondents to the survey,About two-thirds of people believe that the US office market will only rebound after a serious collapse. A larger percentage of people saidCommercial real estate prices in the US will not bottom out until the second half of 2024 or later.
That's bad news for $1.5 trillion in commercial real estate debtAccording to Morgan Stanley, these debts will expire before the end of 2025. Refinancing is not easy, especially since around 25% of commercial real estate is office buildings. The Green Street Index, which measures commercial real estate prices, has fallen 16% from its peak in March 2022.
The value of commercial real estate is being hit hard by the Federal Reserve's aggressive austerity policy, which has raised one of the key costs of owning a property, the cost of financing. butBanks now seeking to sell off risk exposure have found there are few satisfactory options, as few buyers believe the market is nearing bottom.
Barclays Bank analyst Lea Overby said,”No one wants to sell at a huge loss. These properties will not need to be sold for a long time, which means owners may delay the sale as much as possible”.
What is compounding the situation is the pressure on regional banks.According to a March report from Goldman Sachs Group, as of 2022, regional banks held about 30% of office building debt. According to data from the Federal Reserve, after Silicon Valley banks and signature banks went out of business, as of August, small bank deposits had decreased by nearly 2% year-on-year.This means less banks' financing and reduced ability to lend.
Morgan Stanley estimates that the total value of commercial real estate in the US is $11 trillion.It may take years for the pain caused by high interest rates to infiltrate American commercial real estate owners.For example, investors in office buildings usually have long-term fixed interest rate financing, and their tenants may also be bound by long-term leases.
According to a research report released by Moody's Investors Service in March of this year, it will not be until 2027 that leases currently in effect will change to lower rent expectations. If current trends continue, rental income is expected to be 10% lower than it is now by then.
Barclays Overby said,”When interest rates change, US real estate tends to go through a slow liquidation process. The office building is in deep distress, and this will take a long time to resolve.”
However, even if there is a serious and long-term downturn in commercial real estate in the US, including major loan losses in the office building industry, Overby is not worried that this will threaten the stability of the overall market. She said,The real estate industry is large, yet the debt is spread across enough investors to absorb losses.
In addition to high interest rates, office buildings also face the problem of fewer or more tenants moving out. This trend is particularly evident in the USCompared to Europe or Asia, American office workers are even less willing to work in office buildings. The resistance to returning to the office can be attributed in part to the pain of the commute. Over 40% of respondents said they would be willing to return to the office more often if there were better public transportation options.
About 20% of respondents said they moved away from their offices during the pandemic, and only 3% regretted their escape. Nearly one-third of people said their commute was longer than before the pandemic, either because they moved or because transportation services were cut during the pandemic.