The office sector continues to take a beating, as indicated by higher vacancies and flight to quality. Then there is the increase in sublet office space. According to a recent article published by Moody’s Analytics CRE, that rise in subleased office space combined with $8.9 billion of fixed-rate CMBS loans maturing in 2023 could add further stress on the already struggling office sector and commercial real estate (CRE) market as a whole. Members of Moody’s Analytics CRE Research Team explained that properties with higher amounts of sublet space may be more vulnerable during an economic downturn.
Sublet Space – By the Numbers
Moody’s research indicates that nationally, sublet space has increased 23.9%. This can be attributed largely due to companies re-evaluating their use for offices amid discussions surrounding hybridization of workforces; examples include Google adding 1.4 million square feet into Silicon Valley’s market, Verizon contributing 190k sq ft into Boston’s supply and Tableau introducing 200k sq ft into Seattle’s market – among others such as Spotify, Salesforce & Twitter giving back large amounts too! The Northeast region appears particularly affected compared with other regions; this is likely due both from reduced utilization (due to WFH adaptation) plus longer commutes than other metros have seen historically according data scientist Ricardo Rosas’ findings at Moody’s Analytics Data Science team .
CMBS Loans & Beyond The report also notes an uptick in delinquencies within CMBS loans since May 2023 which are mainly single asset/single borrower loans like 375 Park Avenue/Seagram Building located New York City – however it should also be noted transparency differences between bank or insurance lenders make it difficult for analysis across all commercial real estate debt markets beyond just CMBS ones alone according Matt Reidy director at Moody’s Economics team . Villa added vacancy rates were 18% Q1 2023 only slightly below 19% hit during Savings & Loan Crisis late 80’s early 90 ‘ s , projecting rate will increase slightly 19% end year 2024 remaining relatively unchanged hovering around same figure until then .
Deliberate Borrower Default? Ultimately decisions come down each property ‘ s financial situation rent roll whether projected NOI sufficient offset any marginally higher mortgage rates financed variable rate loan etc per Villa ; he anticipates landlords deliberately defaulting properties economy continues its downturn yet expects loan delinquency defaults rise this year similar previous downcycles he adds .
