The next big potential risk to the U.S. economy may be lurking in corporate towers across the country’s downtown districts.
With many people still working from home, companies are cutting back on so much office space that it threatens to unleash even more headwinds for the U.S. economy.
An unraveling of the office sector spells trouble not only for banks that are owed an estimated $1.2 trillion in outstanding office loan debt, but also for countless small businesses that depend on white-collar customers as well as cities that benefit from the property taxes tied to office buildings.
It’s a troubling development for the commercial real estate industry at a time when the U.S. economy is already showing signs of stress and maybe even a recession.
Here are some of the ways America’s empty offices could further hurt the economy:
Landlord defaults and foreclosures
Nearly 20% of office spaces are currently empty across the United States. It’s a milestone that exceeds the vacancy rate during the 2008 global financial crisis, and it’s worse in places like San Francisco and downtown Los Angeles, where more than a quarter of offices are sitting empty.
If companies continue to give up their leases and if demand for office space remains sluggish, office landlords won’t be able to collect the rents needed to keep up with mortgage payments to pay off commercial loans, according to analysts.
Many of those loans are coming due in the next year, and building owners will need to refinance their debts at a time when low occupancy has eroded building values and interest rates have shot up.
That means many landlords could soon be saddled with significantly steeper payments.
Analysts say it could end badly.
“I’d say the number one implication is going to be defaults and foreclosures,” says Kenneth Rosen, chair of real estate research firm Rosen Consulting Group.
A more surefire solution is one that many workers seem unwilling to consider: an end to remote work and an aggressive full-bore return to the office.
Barring that, the cities and businesses that once flourished because of white-collar workers stand to flounder — and even fail — without them.
Source: www.npr.org
ENB
Sandstone Group