US commercial property distress hits $80 bn in Q3, highest level in decade

By John Gittelsohn

The value of distressed US commercial real estate neared $80 billion in the third quarter, its highest level in a decade, as rising interest rates and sagging office demand shook the property market.
 

The value of buildings in bankruptcy, repossessed by lenders or in the process of liquidation increased by a net $5.6 billion in the quarter, MSCI Real Assets reported. Office properties accounted for 41% of the $79.7 billion total. 

The office sector, battered by remote work and declining tenant demand for space, “continued to be the driving force behind growing distress, providing 93% of the additional balance for the quarter,” MCSI said in the report. 

While the level of distress is still less than half of that reached in the depths of the global financial crisis, MSCI identified $215.7 billion of properties that are potentially troubled, with issues such as delinquent payments or slow lease-ups. 

Apartment buildings accounted for almost a third of those at-risk properties — “likely a function of the greater number of multifamily assets” rather than a crumbling of the sector, MSCI said.

US commercial-property values fell 9% in the year through September, and total transactions plunged 53%, MSCI reported separately.