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- Delinquency rates on loans backed by office properties jumped to 6.5% in the fourth quarter, an MBA survey found.
- Out of all the commercial real estate loan delinquency rates tracked by the survey, office loans led the pack.
- "Many properties and loans still face higher rates, uncertainty about property values and – for some properties – changes in fundamentals."
Financial troubles continue to plague the office market, which led an increase in commercial real estate loan delinquency rates.
A recent survey from the Mortgage Bankers Association found missed payments on loans backed by office properties jumped to 6.5% of balances at the end of the fourth quarter, up from 5.1% in the prior quarter.
Meanwhile, the delinquency rate on lodging loans climbed to 6.1% from 4.9%, retail delinquencies were flat at 5%, and multifamily delinquencies rose to 1.2% from 0.9%.
"Long-term interest rates have come down from their highs of last year, which should provide some relief to some loans, but many properties and loans still face higher rates, uncertainty about property values and – for some properties – changes in fundamentals," Jamie Woodwell, MBA's head of commercial real estate research, said in a press release.
Office loans have been weighed down by depressed demand for working spaces since the pandemic. And three years out, the persistence of work-from-home and hybrid models have pushed office vacancies up to all-time highs.
A recent report from Moody's Analytics described the US office market as being in "uncharted territory" with vacancy rates notching a record 19.6%.
In a note last month, Capital Economics forecasted that lackluster demand and high interest rates could spell another 20% plunge in prices for office buildings.
Zooming out, the commercial real estate sector has been in a pinch ever since interest rate hikes made borrowing money a lot more expensive. Some researchers say the sector is at the brink of its biggest crash since 2008, which could wipe out $160 billion from US banks.
Still, MBA's survey found that while the office market segment of commercial real estate is still wobbling, other slices of the sector are recovering.
Despite the fourth-quarter upticks, delinquency rates for retail and lodging-backed loans have largely drop since early 2020.