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Defaults are reaching historic levels in the office market, The Wall Street Journal reports, as a growing number of owners face persistently high interest rates and weak demand.
More than $38 billion of U.S. office buildings are threatened by defaults, foreclosures or other forms of distress, according to recently released data. That is the highest amount since the fourth quarter of 2012 in the aftermath of the 2008-2009 financial crisis.
Adding to the stress on the market is the slower pace office owners are paying back their loans. As recently as 2021, more than 90% of office loans that were converted into commercial mortgage-backed securities were paid off when they became due, according to Moody’s. Last year, that figure fell to 35%, the worst payoff rate in the history of the data, which goes back to 2007.
“It’s a pretty stark change,” says Matt Reidy, director of Moody’s commercial real estate economics.
