The US commercial office market has absorbed 50 million square feet more vacancy than was filled with new tenants over the past three years, a supply-demand imbalance that continues to widen as lease expirations outpace new leasing activity. Class A properties in premier locations are weathering the disruption better than older inventory, but even trophy buildings in major markets are offering historically unprecedented concession packages to attract and retain tenants.
Lenders to commercial real estate are increasingly concerned about loan performance as property valuations decline. Regional and community banks with concentrated commercial real estate exposure are a focus of regulatory attention. Several high-profile office property defaults and distressed sales have established new market comparables that are forcing broader revaluation of assets previously marked at pre-pandemic values.
