Office Market Troubles Have Yet to Bottom-Out According to Fitch Ratings

According to recently released data from a Fitch Ratings report, the post-pandemic challenges confronting both the nation’s office market and the banks that have financed them have yet to fully peak. Although the lowering of office property values since 2019 remains below the 47% drop seen during the Global Financial Crisis (GFC) in 2008, it has fallen nearly 40% since 2019, leaving banks that are heavily exposed to the office sector to amass “reserves to absorb billions in potential losses — equaling up to 8% of their total loan exposure, or eight times higher than when they were heading into the GFC. In the first quarter, “more than $20 billion worth of office loans were non-performing” — nearly double the year-over-year amount. Fitch also observed that “at 73 of the nation’s 4,500 banks, non-performing loans account for more than 10% of commercial real estate portfolios and these lenders face ‘increased risk failure.’” In contrast to the sharp delinquency spike in 2009 due to the longer lasting effects of the financial crisis on the overall economy and an unemployment rate that did not recover to pre-recession levels until 2014, the nation’s current economy is in “solid shape” and unemployment is low. However, the historical trends in the pre-pandemic world based on the “simple maxim that if jobs were being created, more office space would be taken” no longer applies. Instead, office landlords are still struggling to adapt to the post-pandemic world where work from home has become the fact of life.

Source:    https://www.crainsnewyork.com/real-estate/office-troubles-rise-fastest-rate-financial-crisis-fitch