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.
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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 ...
Who will purchase CRE when remote work isn’t going away?
The money supply is no longer being expanded. While this will eventually curb inflation it will also cause a Recession.
Are the "commercial real estate" market and the "residential real estate" market strongly coupled? Will any "crash" of the "commercial real estate" market significantly impact the "residential real estate" market?
Regards,
Housing for illegals. The Feds will use *our* tax dollars to fund it.
right now CRE is having a 50% off sale, but soon it will be 85%-90% off.
And e-commerce is here to stay.
Increases in shipping container costs and supply chain problems will be hitting in March or April too... Biden’s latest hurrahs in destroying the American economy...
If you think remote work is going away, you are going away.
Big, filthy, mis-managed, crime ridden, over taxed, over regulated democrat cities hit hardest.
I guess nobody saw how the internet would cause the death of city business districts, particularly the financial sectors. Downtown used to be the place to make deals, meet movers and shakers, and get information, but no more.
With the loss of urban manufacturing, all that’s left is entertainment and government.
All the brain scientists dropped covid on the country just because they didn’t like the President.
Unintended consequences sent people back to the house to work from home. And those folks, for the most part, aren’t coming back.
These things tend to happen.
I was told by someone that works in logistics that California takes in and sends out a massive percentage of the shipping coming into the US. I want to say the number was around 40%.
If anyone lives in Georgia and if they’re like me, they’re disgusted about watching distribution centers and warehouses popping up, seemingly, everywhere.
That’s all in preparation for when all of California insane EV-truck and other environmental mandates kick in and the cargo starts going somewhere else. Ports along the Gulf of Mexico and East Coast. What in the world will all of those increased demands do to the supply chain?
And isn’t Cape Horn one of the most dangerous bodies of water, in the world, at certain times during the year?
I can go shop in downtown Denver and get mugged or worse, or shop on line. Easy choice.
I agree with the man’s analysis.
The “soft landing” is a myth.
Great, and here I am carrying a mortgage on a small office building. Luckily, it’s an owner user and all payments have been on time for several years. At 5.75% they are probably happy as long as their business holds up, fingers crossed.
“Are the “commercial real estate” market and the “residential real estate” market strongly coupled?”
I will take a stab at this.
It depends. :-)
In today’s economy I would argue they are moderately linked.
The linkage is that if large institutions and investors and banks are forced to liquidate commercial real estate holdings because they cannot pay the higher interest rate mortgage that leaves less money available to prop up the residential real estate market.
That is a bigger issue these days than normal because of the rise of institution investment in residential real estate that has kept prices very high in many markets.
CRE is the worst place to be—Residential Real Estate in “hot” markets is high risk but not as bad as CRE.
Safer than waterways in the Middle East... even at 20 to 30 times the costs. Also, warehouses make sense when just in time manufacturing stops 'cause one or two missing parts shust down the line.
Biden and Democrats have been destroying the nation for 3 years. Trump is going to be left with a mess.
They are connected in the sense that the entire economy is connected. But they are two different markets and while interest rates affect both, residential won’t get as whacked for one large reason:
We have a national oversupply of office space.
We have a national undersupply of housing.
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