Offices Take the Top Spot in Distressed Property Report For the First Time Since 2018

By Franco Faraudo

For as much press about the office market crash that has come out recently, it wasn’t the property type with the highest delinquency rates…until now. A new report by MCIS shows that for the first time since 2018 office properties account for the largest share of total delinquencies, nudging out retail and hospitality. The number of distressed assets grew for all asset classes raising the total by around 13 percent, but offices accounted for the largest share of that increase.

There has been a lot of speculation about when the rising interest rates and dropping office occupancy would translate to lower property values. The report indicates that we are starting to see those price drops now, “Prices for office buildings fell 27 percent in the year through June, compared with a 12 percent decline for all commercial-property types,” the report said.

Despite the decline in value, there are some good signs for the future of offices. Demand has grown in the second quarter of this year as more and more companies are setting return-to-work mandates. But for now, the effects of the current conditions are dragging more and more properties underwater. The drop in prices along with what might be a light at the end of the tunnel will force a lot of office owners to think long and hard about whether they want to divest from office real estate or stick it out in hopes that the market for offices will bounce back.

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