Why America’s Office Landlords Worry

Feeling Squeezed

The situation for many of America’s office landlords is getting dire.

Fewer and fewer of them are able to pay off their debts, as data from Moody’s Analytics show: Only 33% of securitized office mortgages that expired in the first nine months of 2023 were paid off. That’s the lowest percentage since 2008.

Triple Threat

Owners of office assets are facing adversity from multiple angles.

For starters, the unstoppable rise of remote work has increased office vacancies as companies ditch space they don’t need. This weighed on leasing activity and building owners’ bottom lines, making it more difficult to pay off debt.

Then there’s the matter of the Federal Reserve. In an effort to bring down inflation, the central bank hiked interest rates, so incurring new debt, or refinancing existing debt, may be more expensive.

Less income, and more expensive financing is an uncomfortable combination. Making matters worse, these conditions have pushed building values down, dealing an additional blow to America’s commercial landlords.

Trouble Getting Funding

These challenges have led to a rise in defaults. And the banks lending to office owners are well aware of the economic conditions weighing on the sector, which isn’t exactly making them more excited to lend in the space. The pressure is on for commercial landlords in this climate.

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