Nationally, office vacancy rates have surpassed highs seen at the peak of the 2008 global financial crisis. Stress on US commercial property has only grown over the years as the COVID-19 shut down introduced more to working from home and hybrid schedules. Those who do still use office space have begun downsizing when it comes to renewing leases. Unoccupied commercial workspaces in America climbed to a record of 16.4% in the second quarter, according to a report from Colliers.

A combination of challenges has affected the commercial real estate market. High interest rates, hybrid work schedules, and credit squeezes. Net absorption rates have remained negative, resulting in vacancy rates and sublease space hitting new highs. Vacancy rates exceeded the prior record high of 16.3% last seen in 2008. Houston, Indianapolis, and Greater Los Angeles face the highest vacancy rates according to Colliers.

The Federal Reserve raised benchmark rates by over 500 basis points since 2022 to help with inflation, which is the highest increase the United States has seen since the 1980’s. Office property owners have previously been able to access low borrowing costs, and wit the surge in rates recently refinancing debts has become much more difficult. Some predict America’s biggest cities could be facing an economic doom loop. Hedge Fund founder Kyle Bass stresses that US banks face losing nearly $250 billion on their exposure to commercial properties.

This comes as the Mortgage Bankers Association (MBA) reports that commercial and multifamily real estate mortgage loan originations are down 53% in the second quarter compared to last year. This may change in coming quarters, but interest rates and other economic aspects of the economy will determine how much that trend changes.

MBA reported that various property types saw declines in dollar volume of loans. Healthcare saw a 74% yearly decline, retail and industrial both fell 55%, multifamily dropped 48%, and hotels slipped 32%. $1.5 trillion of commercial real estate debt is set to hit maturity and will need refinancing which could potentially bring a wave of distressed properties allowing prices of commercial real estate prices to plunge as much as 40% according to a Capital Economics estimate.

According to advisory firm Avison Young, Tampa’s office market experienced the lowest quarterly leasing volume in over a decade with 460,000 square feet leased. New office space is in demand, leading to an availability of 10.9 million square feet, which is a 1 million square feet decreased from the second quarter of 2022. Because leasing activity has been focused on new office spaces, availability is largely concentrated on older inventory. 

Thank you for your interest. If you are in need of Appraisal & Valuation services in the West Central Florida Market, contact:

Mike Cliggitt, MAI, MRICS, CCIM

813.405.1705 | 863.661.1165 - Direct Lines

findvalue@cliggitt.com

Appraisal & Valuation Markets



Source: INSIDER | Avision Young