Zombie Offices
The rise in interest rates and the widening spreads for real estate financing are causing office buildings to become zombies.
Zombie Offices
The rise in interest rates and the widening spreads for real estate financing are causing office buildings to become zombies. With demand falling and financing becoming scarcer and more expensive, about 40% expect to buy from over-drop building values from pre-pandemic levels over the next 12 to 36 months. This decline in value means many buildings will be worth less than the debt owed, leading to higher defaults and lenders needing to be prepared.
Zombies will be present in most major office markets, but the impact will not be felt equally. Cities with a higher concentration of office buildings than residential and retail, and those whose economies depend on industries that can be used to remote work, such as technology and finance, will be hardest hit. The public sector will lose property tax and public transit revenue of $15 billion to $25 billion nationally, with the bulk of those losses occurring in ten cities. Sales tax revenue will also take a hit.
A self-reinforcin…
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