The office sector continues to take a beating, as indicated by higher vacancies and flight to quality. Additionally, an increase in sublet office space has been observed. According to recent research published by Moody’s Analytics CRE , that rise in subleased office space combined with the $8.9 billion of fixed-rate CMBS office loans scheduled for maturity in 2023 could add further stress on the already struggling sector and commercial real estate (CRE) industry at large. Members of Moody’s Analytics CRE Research Team explained that properties with greater amounts of sublet space may be more vulnerable during a steadily worsening economic situation.
Sublet Space – By the Numbers
Moody’s Analytics research found that nationally, there was an increase of 23.9% when it came to sublet spaces available across all markets; this is due largely due companies re-evaluating their use for offices amidst discussions about hybridizing workforces from home or other remote locations . Examples include Google adding 1.4 million square feet into Silicon Valley’s market; Verizon added 190,000 square feet into Boston’s supply; Tableau contributed 200,000 square feet into Seattle’s market while Spotify Salesforce and Twitter also gave back large amounts too . The Northeast region reported higher levels than those seen within Southeast metros according to data scientist Ricardo Rosas who noted this was likely because people had longer commutes which made WFH adoption easier than other regions .
CMBS – And Beyond
The article said delinquencies spiked significantly during May 2023 but attributed most cases were single asset/single borrower loans like 375 Park Avenue/Seagram Building located in New York City ; however conduits through two different methods showed “meaningful jump” between January 2020 – May 2023 regarding delinquency rates associated with CMBS loans though transparency issues exist when looking at bank & insurance lenders as they are two largest lending groups within commercial real estate market according Matt Reidy director of CRE economics from Moody’s analytics . Economist Nick Villa pointed out vacancy rate stood 18 8 % Q1 2023 just below 19 3 % hit Savings & Loan Crisis late 1980 s early 1990 s ; projected rate top 50 US metros end year 19 1 % remain relatively unchanged hovering around 19 0 % end year 2024 he added
Deliberate Borrower Default Villa went on say landlords might deliberately default properties if economy continues downturn citing example Brookfield Properties strategic default Los Angeles buildings ultimately comes down each property financial rent roll whether projected NOI sufficient offset marginally higher mortgage rates financed variable rate loan example Class A bond price 375 Park Avenue indicating investors expecting payoff until 2027 alluding increased likelihood extensions across sector he concluded
