Distressed US commercial property assets rise to 10-year high

Published Thu, Oct 19, 2023 · 12:30 AM

THE value of distressed US commercial real estate neared US$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 US$5.6 billion in the quarter, MSCI Real Assets reported. Office properties accounted for 41 per cent of the US$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 per cent 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 US$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 multi-family assets” rather than a crumbling of the sector, MSCI said.

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