Back when money in the bank was yielding almost nothing, commercial real estate became a haven for investors in need of reliable returns. Then central banks jacked up interest rates to tackle a bout of post-pandemic inflation and a lot of properties suddenly looked like poor investments. The troubles were compounded by the rise of home working and online shopping, which sapped demand for big, centralized workplaces and retail spaces. As prices tanked, the crisis began to affect the wider economy as banks were saddled with soured property loans, hurting their ability to lend, and cities were pockmarked with empty buildings.
The crisis has been a slow-motion slide over many months, as most properties are privately held and valuations can take years to adjust to shifts in demand. The MSCI World Real Estate Index fell by a third from the start of 2022 to October 2023, signaling where equity investors believed property values were headed. About $1.2 trillion of US commercial real estate debt was “potentially troubled” because of the slump in prices, advisory firm Newmark Group Inc. said in August. Vacancy rates for office buildings in major US cities were at records and landlords were walking away from some properties now worth less than their debt, handing them to their lenders. Goldman Sachs Group Inc. took a $1.15 billion hit for bad real estate investments. Some German property developers started going bust. In Hong Kong, 15% of the most valuable office space sat empty.
