Commercial real estate has experienced its share of busts in recent decades, the Wall Street Journal reported Monday, noting that this downturn is different. Landlords are contending with a cyclical market downturn as well as secular changes in how people work, live and shop. A sudden surge in interest rates caused property values to fall while remote work and e-commerce have reduced demand for office and retail space.
Investors and economists say these two forces haven’t converged on this scale since the 1970s when a recession followed surging oil prices combined with a stock-market rout along with new technologies enabling jobs to move out of major cities. This time around, the pandemic is largely responsible for accelerating commercial property upheaval according to WSJ .
It remains uncertain how bad the commercial property downturn will get; some analysts suggest it may be less severe than previous recessions such as those experienced early 1990s or after 2008 financial crisis – particularly if U.S economy avoids deep recession coupled by quick reduction of interest rates . However deeper problems facing office spaces & certain retail landlords mean building values are unlikely to rebound like they did after past meltdowns .
This could spell trouble not only for economic growth but also banks , pension funds & asset managers who lend on/own commercial properties ; “You literally have trillions of dollars of investment that are suddenly just massively impaired,” Dan Zwirn , CEO at Arena Investors (a New York based asset manager & real estate investor) told WSJ
