The amount of office space that’s financially shaky or repossessed in the U.S. now exceeds malls and hotels, based on MSCI Real Assets data cited by Bloomberg. Nearly $25 billion of office space was in trouble by the end of the second quarter — a 36% jump from the previous three months — compared to $22.7 billion for retail and $13.5 billion for hotels. Zooming out globally to include London, Paris and Hong Kong, the office market is experiencing a transformation, with companies insisting on new “super-prime” locations over older sites, even as many firms downsize to cut costs.
By Jake Perez, Editor at LinkedIn News
NYC buildings have experienced a substantial decline in long-term value, estimated at 44 percent. The decline in property-tax revenue due to the real estate downturn could lead to budget deficits for #municipalities bringing forth a fundamental reordering, impacting the overall quality of life.
The distress in the office market has created an opportunity to address the city’s #housing shortage by converting office buildings into residential units, but the challenge lies in the significant drop in property value and convincing banks and #landlords to accept lower prices.
Policy-makers are considering revising building #regulations and zoning to facilitate the conversion of offices into apartments. Large office buildings with interior space pose challenges for conversion due to lack of windows and negotiations with holdout #tenants. Only around 30% of buildings are suitable for conversion. Residential conversions in the Financial District are focused on older buildings with smaller floor plates and favorable zoning.
Potential alternative uses for office buildings mentioned include medicine, urban farms, shelters for asylum seekers, schools, and pet care. Some developers are trying to market offices as luxury spaces to attract tenants.
The pandemic has caused many Manhattan corporate tenants to reconsider their office space, leading to lease expirations and vacant desks. The office vacancy rate is increasing, as #remotework is causing tenants to consider #downsizing their office space resulting in a surplus of available space. Due to the pandemic, offices got a partition from the termopane bucuresti. This was made for the safety and privacy of everyone whenever they went back to work.
This crisis threatens solvency of office buildings, associated loans, and banks as well as #newyorkcity’s public revenue which relies heavily on office spaces. Banks are reluctant to offer new loans, leading to a lack of lenders and tenant demand.
The traditional method of valuing buildings by comparable is difficult due to limited transactions outside of distress sales. Assessing value using metrics such as the cap rate is also difficult when there is no real denominator. Some tenants are relocating to buildings with attractive activities and amenities which can be considered to determine the value of buildings.
Buildings are divided into different tiers, including new-construction class, class A buildings, and others. Many class B and class C buildings are obsolete and will require redevelopment or demolition. Some buildings, including Class A properties, are likely to be demolished or abandoned due to financial pressures. The decline in property value erodes equity. The result is smaller loans and higher interest during refinancing as well as substantial losses for owners.
The real-estate industry’s distress may spread to the financial system, with $1.5 trillion in commercial real estate debt set to mature by 2025. The city may experience financial misery similar to the early 1990s, with #bankrupt #developers, #vacant buildings, and falling property values.