The commercial real estate market could face a fall of up to 40%: why
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Between April and December of this year, 35% of commercial mortgages will expire, an estimated $1.5 trillion in debt
Specialists consider that for this 2023, one of the biggest falls in the commercial real estate market is coming, which is expected to be similar to or greater than the financial crisis of 2008, therefore, the valuations of real estate they may fall as much as 40% this year.
These forecasts are based on the current fragility of the US economy. According to Fitch Ratings, it indicated in its report that between April and December of this year, 35% of the commercial mortgages of pooled securities mature, this represents $5.800 million dollars that can no longer be refinanced.
For Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, high interest rates are one of the first hurdles for investors to refinance trillions of dollars in looming debt. There is an estimated $1.5 trillion in commercial mortgage debt due by the end of 2025.
Shalett mentioned that “the MS & Co. forecast a CRE price drop from peak to trough of up to 40%, worse than in the Great Financial Crisis. More than 50% of the $2.9 trillion in commercial mortgages will need to be renegotiated in the next 24 months, when new interest rates are likely to rise 350 to 450 basis points,” she said.
Other drawbacks mentioned by specialists are the high costs of loans, the new modality of remote work and the stricter credit conditions, which has caused the largest increase in default in the market.
The analyst added that “commercial real estate, already facing headwinds from the shift to hybrid/remote work, has to refinance more than half of its mortgage debt in the next two years,” Shalett noted.
For her part, Treasury Department Secretary Janet Yellen warned that due to the country's recent banking and economic crises “there will be problems with commercial real estate,” she said while assuring that banks will be able to handle the inconveniences to come as they will be stronger.