Now 2 year post-pandemic, office vacancy rates are rising at quicker levels than expected. Commercial real estate data suggests that working from home is becoming a more permanent feature of the American economy. Vacancy rates continue to climb in major markets across the country and worldwide, and signs of potentially defaulting loans appear to be growing. The largest jumps in office vacancies have been in San Francisco, Seattle, NYC and LA.
Analysts at British multinational bank Barclays, noted last week that the share of office mortgages that have been either put on a watchlist of loans looking to be in trouble, or “special servicing,” where loans with missed payments are sent, has hit more than 21%, the highest since the financial crisis. This is an indication that something like a bubble could be forming within the office sector. More recently, private equity company Blackstone, one of the largest PE firms in the world, stopped making payments on a loan backing their 600,000 SQFT office tower in Manhattan. This building is expected to be vacant next year after one of its main tenant’s decided not to renew their lease.
The bottom line is that companies who began WFH during the pandemic are most likely not going back. Think about the money saved on rent, electricity, operation costs, hardware etc. by running the entire business remotely. While office real estate is not going to collapse overnight, as most are locked into leases of at least 10 years, trends are suggesting worrying data about office mortgages and suggest that we will see significant change for years to come.