America's office market will plunge another 20% in value next year and will take decades to climb back to its peak

• America's office market is bound for another 20% decline in value next year, Capital Economics estimated.
• That's largely due to waning demand for offices as work-from-home remains popular.
• Analysts said it will likely take two decades or more before values regain their early-2020 peak.

America's office market is still in the midst of a major correction, and office buildings still have another 20% price plunge ahead, according to Capital Economics.

"Persistent weak growth and elevated (albeit soon-to-be-falling) interest rates continue to spell trouble for real estate values," the research firm said in a note on Friday. "Offices still face a substantial value adjustment, with another 20% fall to come in our view."

The outlook for the commercial real estate sector has been troubled for months, particularly with respect to the office market. Work-from-home and hybrid models still remain popular among US workers, sending office vacancies to an all-time-high this year.

"Though new supply is slowing, contracting demand continues to be the main driver of rising vacancy, which we think will continue for another couple of years," the firm said.

Falling demand is being complicated by higher-for-longer interest rates, which affect the return on income from offices. Though investors are expecting the Fed to cut interest rates sometime next year, central bankers have warned rates could stay elevated over the long run as they continue to monitor inflation.

Capital Economics estimated that the overall peak-to-trough decline for US office values will reach 43% and that it will likely take two decades or more before values regain their early-2020 peak.

Experts have warned of trouble in the commercial real estate sector since the banking turmoil of early 2023, which caused credit conditions to tighten. That made banks less willing to finance office buildings, with some lenders reportedly trying to dump their commercial real estate assets from their portfolios this year, according to Bloomberg.

Meanwhile, property owners who are able to refinance their mortgages are having to do so at much higher interest rates. That could bring on a wave of distressed debt, some economists warn, as there's around $1.5 trillion of CRE debt maturing over the next few years.