Signs of a global real estate crisis are being felt in most major cities around the world. Huge loans accumulated by real estate developers to banks indicate a slump in the real estate sales and rental market for offices and workplaces.
Experts have noticed that developers of real estate buildings in New York or London, unable to pay the bank loans contracted for them, have started abandoning them. The owners of the largest mall in downtown San Francisco have abandoned it, and a skyscraper in Hong Kong is only a quarter leased. According to Bloomberg, this phenomenon is expanding. There are signs that things are getting worse in the Romanian market, where many companies have stopped their operations and abandoned new projects.
After a long period of using cheap credit, homeowners and lenders are in for a shock. The changes in the labor market after the pandemic, the fact that workers can do their work from home, the market for the sale and rent of work spaces has decreased significantly.
Major institutional owners, including Blackstone, Brookfield and Pimco, have decided to stop financing certain buildings, using their money and resources in other directions.
“There is significant stress in the market,” said Harold Portwin, New York managing director of Keene-Summit Capital Partners LLC.
The office building market is collapsing
The number of transactions is decreasing, and when they are, sellers are forced to drastically reduce prices. In the US, where the percentage of returning to office is lower than in Asia and Europe, office prices have fallen 27% since March 2022. This has led to interest rates starting to rise, according to data analytics firm Green Street. And the price of apartment buildings decreased by 21%, and malls decreased by 18%.
However, the largest reduction occurred in the office market, where experts expect a 25% price drop in Europe, and almost 13% in the Asia-Pacific region. PGIM Real Estate estimates that only then can a stable margin be achieved.
The adoption of hybrid working is also hitting London. The West End, home to the city’s vibrant shops and nightlife, is suffering a significant loss as the number of workers commuting to the office declines. Companies are looking for space in better buildings and locations to attract workers back. The phenomenon spread to Sweden and South Korea.
Market recovery will be slow and prolonged
The same experts estimate that it took six years for US office prices to recover after the 2008 financial crisis, so the recovery in this market will be very slow.
“We think this cycle will take 10 years,” said Richard Burgham, global chief economist at CBRE Group Inc.
A joint study by New York and Columbia Universities estimates that city offices will lose 44% of their pre-pandemic value by 2029 due to the impact of remote work.
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