There are a whole lot of empty buildings around here. Where did all the people go?
CRE is expected to have serious issues in the coming year or so.
They are working from home. I now know quite a few people that work from home. Ten years ago it was rare. Even just prior to covid it was relatively a small percentage of full time workers.
This has led to commercial office buildings in every city being 1/3 full. That also means they are not taking in enough rent. Which results in a significant reduction in the value of the asset. With higher interest rates it makes it hard to refinance. Which may put some commercial real estate companies out of business and the banks financing those buildings in trouble.
Commercial leases are relatively long. My companies is 6 years. You need to plan a couple years ahead IF you are going to move. So, over the next 4-6 years many of these leases are going to come up for renewal. Many companies will downsize their square footage requirement.
I will use my older brother as an example. He works for a major fortune 500 company in their Dallas location. It is not the corporate headquarters. Just one of three major locations in the US. He has worked from home since covid. He is 63. He does not think he will ever return to the office. So, the building that he used to commute to daily is mostly empty. So, when their lease is up they may only need 1/4 to 1/3 of the office space they were renting. This is happening all over the US. Probably the world.