Part 1: Keeping a Close Eye on the Commercial Real Estate Market

Jul 24, 2023 | Macro Insights, No Bull Economics

Commercial Real Estate Post Banner

The banking crisis is over, or is it? We suggest that it is a good idea to closely monitor the condition of the banks’ commercial real estate loan portfolios which have expanded to $2.9 trillion currently from $1 trillion in 2004. There are important challenges to this asset class for us to consider…

Commentary

  • Given higher post-covid telecommuting and increasing inner-city crimes, office occupancy rates are down and the cost of capital to fund transactions has increased significantly, pressuring commercial office prices and making it difficult to appraise collateral value.
  • The Green Street Commercial Property Price Index, which tracks the pricing of institutional-quality commercial real estate, is down -16% from its March 2022 peak through the end of June 2023.
  • Notably, the office tower at One South Street in downtown Baltimore made news after it recently sold for $24MM, representing a -64% decline from its $66MM sale price 8 years ago.
  • With fewer people commuting to the cities, retail demand in the urban metros is also down, pressuring retail commercial real estate values as well.  
  • In our next post we discuss how banking regulators are preparing to deal with this challenge.
Commerical Real Estate Prices and Commercial Real Estate Loans Graph

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