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November 06, 2023 at 04:45 PM
An Aflac executive told securities analysts last week that the office market slump has cut typical building prices by 25% to 40%, and by as much as 60% in some cases.
“The commercial real estate markets are going through their worst cycle in decades,” Max Brodén, Aflac’s chief financial officer, said during a conference call.
He compared the current slump to the 2007-2009 Great Recession, noting that prices fell about 35% to 40% then.
What it means: The slump will hurt funds with large investments in office buildings. It could help clients who want to invest in office buildings.
The context: Many of the employers that sent employees to work at home during the COVID-19 pandemic still have employees working away from the office.
The true physical occupancy rate for office buildings in big U.S. cities is only about 50%, according to Kastle, a company that runs building entry systems.
Meanwhile, interest rates have increased rapidly, meaning that the payments on new mortgages will be higher than the payments on old mortgages.
Only half of the U.S. office buildings with loans set to mature in 2024 look as if they can afford to refinance, according to Bob Vrchota, a Fitch Ratings analyst who spoke at a Fitch conference in October.
