Prepare for the impeding collapse of the commercial real estate market as investors indicate that sky-high interest rates and declining property values are major factors contributing to this downturn, according to a survey.
About two-thirds of respondents to a Bloomberg News survey expressed their belief that the commercial real estate market will rebound only after experiencing a crash.
Of those surveyed, 44% predict that the price of office properties will hit rock bottom in the second half of next year, while 22% expect it to occur in the first half of 2024, according to Bloomberg News.
Only 6% of the 919 respondents believe that prices will reach their lowest point this year, while 29% anticipate it happening in 2025 or beyond.
The Federal Reserve’s aggressive interest rate hikes have increased the cost of financing commercial properties at a time when there is reduced demand for them, consequently impacting rent levels.
Investors are preparing for a potential crisis triggered by the default of $1.5 trillion in debt that will come due by the end of 2025.
Trepp reports that $270 billion in commercial real estate loans held by banks are set to mature in 2023.
According to analysts at Morgan Stanley, over the next four years, commercial real estate properties must pay off debt maturities that will peak at $550 billion in 2027.
A recent study conducted by economists from NYU Stern Business School, Columbia Business School, and the National Bureau of Economic Research revealed that vacancy rates in many American cities have reached 30-year highs.
In Q1 of 2023, the vacancy rate in New York City was 22.2%.
New York City, the world’s largest commercial real estate market, has witnessed a $76 billion decline in office building values from their most recent sales prices, according to broker JLL.
Blackstone and RXR sold the office building at 1330 Avenue of the Americas for $320 million, which is a third less than the listing price in 2006.
Real estate firm Cushman & Wakefield recently predicted that there could be 1 billion square feet of unused office space in the US by 2030.
The New York Fed expressed uncertainty earlier this year about when or if the commercial real estate sector would regain its prior strength.
“While the residential rental market has rebounded, the retail and office markets have remained sluggish, primarily due to the shift to remote work and online shopping,” stated the bank on its website.
Commercial rents in Manhattan have significantly decreased from pre-pandemic levels, and this downward trend may continue as more commercial tenants come off leases negotiated during a stronger demand for office and retail space.
With Post wires
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