Higher rates have negatively impacted smaller banks’ balance sheets-meaning they are less likely to issue new loans. How High Rates Could Escalate LossesĪdding further strain are the ramifications of higher interest rates. If these loan portfolios deteriorate, banks may face a downgrade in ratings and higher credit losses.Īdditionally, banks with loans in markets with high vacancy rates like San Francisco, Houston, and Washington, D.C. Many have higher loan concentrations and less oversight on reserve requirements. The good news is that many big banks are sitting on healthy capital reserves based on requirements set in place after the global financial crisis. Big banks cover roughly 20% of office and downtown retail totals.Ĭonsider how commercial real estate exposure breaks down by different types of banks:įor big banks, a recent stress test by the Federal Reserve shows that a 40% decline in commercial property values could result in a $65 billion loss on their commercial loan portfolios. This is especially true for small and regional banks that make up the majority of U.S. Office building valuations are projected to fall 30% in 2023 according to Richard Barkham, global chief economist at CBRE Group.Ī sharp decline in property values could potentially result in steep losses for banks. office markets, with many cities potentially seeing an uptick in vacancies going forward. Overall, rising interest rates and higher vacancies have hurt U.S. This year, Salesforce walked away from a 30-story tower in downtown San Francisco spanning 104,000 square feet in an effort to cut costs. Prior to the pandemic, vacancy rates were about 4%. Occupiers are downsizing given remote work trends, yet some office buildings are being converted to residential properties, curtailing vacancy rates.Īcross 54 markets in the dataset, San Francisco has the highest vacancy rate at over 26%. with a 21% vacancy rate-8% higher than what is typically considered healthy. In 2019, the office sector accounted for about a third of all jobs in the city.įalling closely behind is Washington, D.C. If this were stacked as a single office building, it would stretch 7 miles into the atmosphere. New York has roughly 76 million square feet of empty office space.
Numbers may not total 100 due to rounding. Figures include central business districts and suburban areas.
Here are cities ranked by their total square feet of office vacancy as of Q1 2023. An estimated five to 10 office towers are at risk of defaulting each month according to Manus Clancy, senior managing director at Trepp. Cities by Empty Office SpaceĪt the end of the first quarter of 2023, a record 963 million square feet of office space was unoccupied in America. based on data from JLL-and the wider implications of office towers standing empty. The above graphic shows nearly 1 billion square feet of empty office space in the U.S. Faced with low occupancy rates, it joined other office giants Blackstone and WeWork defaulting on office debt this year. The loan, covering 12 office buildings, was mainly concentrated in the Washington, D.C. In April, one of America’s largest office owners, Brookfield, defaulted on a $161 million loan. 1 Billion Square Feet of Empty Office Space
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