Highway To Hell Part Deux: Office Tower Vacancy Rate Hits Record High As Zombie Buildings Litter Skylines of Cities (Office Mortgages Living On Borrowed Time)

Confounded Interest ^ | 04/03/2024 | Anthony B. Sanders

[Kaiser8408a]

Bidenomics is also a Highway To Hell for commercial real estate. Let’s say real estate is thunderstruck under Bidenomics.

There are more dormant office towers in the United States than at any point since 1979, according to a new report from Moody’s Analytics, which began tracking office leasing vacancies that year.

The rising supply of office space is due to a combination of surging remote and hybrid work that forces companies to reduce corporate footprints. Also, companies are exiting imploding progressive cities and high-taxed blue states for red ones while downsizing space.

In the report, office tower vacancies rose to a record 19.8%, up from 19.6% in the fourth quarter of 2023.

Even with the increase, there is an eerily calm across the commercial real estate sector. This comes as the Federal Reserve’s interest rate hiking cycle is higher for longer, indicating that the pain train is nearing (perhaps after the presidential election).

“The office stress isn’t quite done yet,” Thomas LaSalvia, Moody’s head of commercial real estate economics and one of the authors of the report, told Bloomberg in an interview. He noted recent positive economic indicators stave off a “perfect storm in the office sector.”

The high office vacancy rate continues to be terrible news for landlords and developers eager to fill their buildings, and the Fed’s hiking cycle has made refinancing very challenging.

Last month, Goldman’s Vinay Viswanathan penned a note explaining how “office mortgages are living on borrowed time.”

Viswanathan said there have been no major fireworks in CRE tower debt because the debt is being “extended and modified rather than refinanced,” which “mitigates a default wave and a sharp pick-up in losses on CRE loan portfolios.”

Yes, both residential and commercial real estate are thunderstruck under Bidenomics.

[Bonemaker]

Lot’s of upsides to this, but I like that big democrat cities are getting a tax haircut!

[Sirius Lee]

Exactly!

[absalom01]

The big question is what the major institutional landlords (eg Brookfield) are going to do over the summer. If they decide to hand more downtown Class A buildings to the banks, it could be too much, too fast for the Junta to contain.

But it doesn’t look like they’re doing that, based on what they’ve done to date, with limited and strategic “defaults” that keep turning into renegotiations. It looks like both sides are betting on getting *any* viable tenants where pre covid they would want big accounting and law firms, they’re signing firms that would never have been able to afford those buildings. So maybe they’ll stay afloat. The real impact may well be to the outlying B and C buildings, which will have a bigger impact on the regional banks that our ruling Junta doesn’t really care so much about.

It’ll be interesting, for sure.