US commercial real estate market nears reckoning as office values plunge

In the aftermath of the Covid-19 pandemic, the $20 trillion US commercial real estate market is facing a reckoning as property values plummet. With rising interest rates and maturing debt, reluctant sellers are now coming to terms with distressed prices. Recent deals, including a Blackstone-owned office building at a 50% discount and a Los Angeles tower sold for 45% less than a decade ago, signal a turning point. As the Federal Reserve halts interest-rate hikes, the market anticipates a cascade of sales, potentially causing global financial repercussions. Investors brace for losses, with over $1 trillion in commercial real estate loans maturing by next year. The crisis, marked by office vacancies and increased borrowing costs, extends beyond the US, impacting global investors and banks. Despite varied outlooks on the crisis's magnitude, the market is moving from denial to acceptance, forcing lenders to confront the black hole on their balance sheets and recognise the true state of affairs.

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By Natalie Wong and Patrick Clark

The shakeout in the $20 trillion US commercial real estate market has long been delayed for a simple reason: No one could figure out just how much properties were worth. And, more crucially, few wanted to.

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