According to Commercial Edge, 9,500 buildings, or around 17% of global office stock, will be up for renewal during the next three years. There will be around 380 million square feet of space with loans that mature over the following three years. It does not guarantee a good time.
“Recent high-profile defaults hint that the pain may be only beginning for office owners,” the firm wrote. “Columbia Property Trust defaulted on $1.7 billion in loans backed by seven buildings, Brookfield Asset Management defaulted on $784 million in loans for two office towers in downtown Los Angeles and RXR is reportedly considering handing the keys over to the lender for at least two of its New York offices.”
There will be some places hit particularly severely because of the uneven distribution of the properties with maturing debts. More than 10% of the stock in Atlanta, Denver, and Portland, Oregon is reaching maturity. A total of 7% of the stocks in Chicago and Los Angeles will mature.
“Over the next three years, eight of the top 25 markets will see at least 20% of stock subject to a maturing loan, led by Atlanta (29.1% maturing by the end of 2025), followed by Portland (27.5%), Denver (24.3%), Chicago (23.0%), Los Angeles (21.5%), Washington, D.C. (20.4%), Austin (20.0%) and Dallas-Fort Worth (20.0%),” Commercial Edge wrote. “Some of these markets also have vacancy rates above the national average—with Atlanta sitting at 20.5%, Chicago 19.2% and Denver 17.6%—which will add more uncertainty for owners.”
These buildings will be difficult to refinance. Undoubtedly, some of it has outdated, if not old, offices. In order to qualify for a loan, borrowers may be required to provide “firm leases with high-quality tenants” and contribute more equity. The prices have decreased from an average of $299 per square foot in Q4 of 2021 to $214 by the end of 2022, which may deter owners from selling. If a sizable amount of stock is released onto the market in any metro area, fire sales may result. Commercial Edge pointed out that, provided the buildings have the physical qualities to support a makeover, reducing prices might increase the attractiveness of adaptive reuse.
