Posted on 01/24/2024 8:40:29 AM PST by george76
Rising interest rates, the remote work trend, and the dominance of e-commerce sellers have combined to hammer the commercial real estate market over the past few years. Sky-high office and retail space vacancies are plaguing owners in this new environment, rents are plummeting, and borrowing costs have soared. As a result, U.S. commercial real estate prices have fallen 11% since the Federal Reserve began raising interest rates in March 2022, the IMF reported last week, the worst decline in over 50 years.
The outlook for the sector is now so bleak that Cantor Fitzgerald’s billionaire chairman and CEO Howard Lutnick is predicting between $700 billion to $1 trillion of defaults over the next two years unless interest rates fall quickly—and he sees that as unlikely.
“I think it’s going to be a very, very ugly market in owning real estate over the next 18 months, two years,” Lutnick .. there’s going to be a “generational change” in real estate.
...
estimated $1.2 trillion in commercial real estate debt maturing by the end of 2025... 25% of that debt is in the hands of struggling office and retail space operators. With interest rates rising more than 5 percentage points in the past two years, that’s a recipe for defaults.
...
Fed’s interest rate hikes are like a ”steamroller” that is hitting the real estate market and the economy.
...
some real estate experts fear that rising commercial real estate defaults could trigger a doom loop that impacts regional banks with the most exposure to the sector, and eventually the entire economy.
In its Jan. 18 report, the IMF detailed its own doom loop fears, warning that financial supervisors “must continue to be vigilant” in order to ensure that the commercial real estate sectors’ issues don’t become an economy-wide problem.
(Excerpt) Read more at finance.yahoo.com ...
I can’t imagine how many booby traps and time bombs the dims have planted for Trump to deal with.
Call Brandon. Just forgive the loans.
Market share of commercial real estate investments in the United States from 2020 to 2022, by property type
In 2022 the breakdown was:
multifamily 41.6%
industrial 21.2%
office 16.2%
retail 12.5%
hotel 6.7%
other 1.8%
https://www.statista.com/statistics/789084/share-of-property-investments-usa-by-property-type/
Only office is in real trouble. Retail is largely back, except for dead malls. Industrial is doing fine. Hotel is full of wetbacks.
It would be nice to uncover the true identities of the residential real estate cash buyers. There aren’t that many people with a quarter mono in gash sitting around bored. Homes are still being snapped up.. smells like crony capitalism.. market booms while we try to pay for groceries at all time highs.. and my fave this week the WEF wants us to drink 2-3 cups of coffee per year.
It is not only the shift to remote work and the popularity of virtual office space which plagues the commercial real estate market. Unoccupied office space also means fewer workers commuting in daily who are customers for a myriad of other urban business, including restaurants, parking garages, bars and entertainment spots.
Exactly, I don’t discount that.
Not paying city wage tax, parking, food, etc.
City governments will have a very decreased tax revenue base. F em.
If my only choices were go to work in city and have to interact with city blacks and make $150K, or work from home at $110K…
Home every single time.
Not a chance. Tax payers will buy them all for hosting our new overlord illegal immigrants. Are we building millions of new homes for all these illegals each year? They demand the best and the tax payers will get them luxury homes and the demorats will make sure that happens.
The banks are going to have a field day. Repo the property, and make a fortune on refinance and new loans.
Hello San Francisco and New York City!
Load them up with invaders at the tax payers expence
I’m a thousandaire and I knew this was coming in 2020.
There will be rezoning efforts to convert commercial into residential.
Or lose money on property taxes when they can’t sell.
Downtown still is the place to meet people, make deals, stay smart, etc. What is no longer a place to is shuffle papers, maintain books, process payroll, store and retrieve records, etc. This is how every bar and restaurant in Manhattan can be packed but the offices can be 75% empty.
SaxxonWoods: You state the obvious, but thank you anyway.
cgbg: Your contribution provides pertinent info (e.g., I wasn't aware that institutional investment in residential real estate was more than non-negligible) and sheds some actual light on the matter. Thank you!
Regards,
Why ship cargo to/from the East Coast (incl. Georgia) from/to anywhere else via Cape Horn when the Panama Canal is still in operation?
Regards,
Panama Canal extends restrictions due to “historically unprecedented” weather
https://www.ship-technology.com/news/panama-canal-extends-restrictions-due-to-historically-unprecedented-weather/
The Panama Canal is enmeshed in a crisis that’s disrupting global trade. But it will take years and billions of dollars to fix
https://fortune.com/2024/01/02/panama-canal-shipping-bottleneck-cargo-climate-drought/
Come the Revolution, we "hundredaires" will sweep you away and consign you to the trash heap of History. Then we will establish a true paradise!
Regards,
75% of the office workers are engaged solely in such mundane tasks as shuffling papers, maintaining books, etc. and could thus stay at home.
When 75% stay at home, the 25% who meet people, make deals, etc. won't suffice to "pack" the bars and restaurants.
Regards,
One possible scenario for the next year:
The “powers that be” are holding their finger in the dike, lying in the economic reporting numbers, and just waiting for Trump to be elected President before letting it all come crashing down. Suddenly, the media will be reporting on the awful economy, the certain recession, and the crash in commercial real estate.
Bookmark or download a few of the articles at financial sites gushing over Bidenomics and the wonderful economic forecast. I suspect they will all disappear by the end of next January.
Another scenario:
They let it crash in early fall, create several crises at once, and then declare a state of emergency that prevents any election at all. To “Build Back Better” you first have to tear everything down.
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