Listen: My Noa Series for August

As the consequences of falling real estate prices and debt defaults play out, we’ll take a look at the breadth and depth of the problems in the commercial real estate market.

In my previous Series, I touched on the topic of hybrid working. Collaborating with the Noa (News Over Audio) editorial team, I curated this month’s interesting Series where we look into the repercussions of remote working and the impact an increase in empty offices is having in the commercial real estate market. 

One of the shocks of 2023 has been the strength of the US economy. Its growth has defied myriad forecasts of a “hard landing” and recession following the inflation surge and accompanying interest rate rises.

Despite the appearance of a complete recovery from the pandemic, a closer look at the offices in major cities reveals an unsettling trend. For instance, in downtown Manhattan, New York, the vacancy rate stands at 26%, a significant increase from the 11% rate at the end of 2019.

Offices are quieter not just in America, but across the world.

Companies have been compelled to downsize their office space due to a combination of remote and hybrid work arrangements, as well as job cuts in various sectors.

Not only are landlords experiencing a significant decrease in rental revenue from their offices, but they are also facing the unfortunate circumstance of this decline coinciding with a surge in interest rates, exacerbating the situation.

After more than a decade of low rates and cheap capital, which was used by investors to acquire real estate assets, landlords are having to adjust to a higher rate environment. This is creating a re-financing headache for some, as they try to secure debt financing on buildings that will cost them more in interest, but generate less for them in rental income.

Some prominent figures, like Blackstone and Brookfield, are choosing to give up and default rather than investing further funds into properties that have experienced a significant decline in value.

As the consequences of falling real estate prices and debt defaults play out we’ll take a look at the breadth and depth of the problems in the commercial real estate market.

We’ll start with an overview of the problem, which Bloomberg calls a ‘Debt time bomb’ and is affecting cities from San Francisco to Shanghai. We’ll then focus on one market in Europe – Dublin – where transactions are grinding to a halt.

The value of real-estate loans that come due by the end of 2024 is more $1.4 trillion, making it a sector with the potential to cause ripples in the global economy.

Keep on listening FREE and UNGATED here as we take a look at what some landlords are doing to try and adapt.

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