The worth of troubled commercial real estate in the United States approached $80 billion in the third quarter, marking the highest point in ten years. This surge is attributed to increasing interest rates and a decline in the demand for office spaces. The value of properties that are either in bankruptcy, seized by lenders, or undergoing liquidation rose by a net $5.6 billion in the same quarter, as reported by MSCI Real Assets. Office buildings made up 41% of the total $79.7 billion.
The office sector, which has been negatively impacted by the rise of remote work and a decrease in tenant demand, was identified as the main contributor to the increasing levels of distress. It provided 93% of the additional balance for the quarter, according to MCSI’s report.
Although the current level of distress is still less than half of what was experienced during the global financial crisis, MSCI has identified $215.7 billion worth of properties that could potentially face issues like delinquent payments or slow leasing processes.
Apartment buildings constituted nearly one-third of these at-risk properties. MSCI clarified that this is more likely due to the higher number of multifamily assets rather than a decline in the sector itself.
In the year leading up to September, the value of U.S. commercial properties dropped by 9%, and the total number of transactions plummeted by 53%, as separately reported by MSCI.