Commercial real estate has had a few rough years, and it seems like things won’t be getting better anytime soon. The sector is set for a potential rise in defaults, as higher interest rates have increased the costs of refinancing.
And with $2.8 trillion due between now and 2028, more landlords could be feeling the crunch. According to data firm Trepp, commercial debt maturities are expected to balloon in the next few years. While many loans were extended or refinanced, the clock is slowly ticking for the CRE sector as those extensions are coming due.
Worst Commercial Slump in the Last 50 Years
The CRE market has been struggling to regain its footing since the start of the pandemic, especially in office space. When the pandemic hit, many office spaces emptied, forcing landlords to make deals to delay payments until things recovered.
Unfortunately for those invested in the office arena, remote and hybrid working is now becoming the norm, with many businesses downsizing their office space or even becoming fully remote.
Now that the CRE debt is coming due, landlords are starting to squirm. Because of how commercial mortgages are structured, when the debt matures, the principal must be paid off in full or refinanced.
This has led to one of the steepest commercial real estate price declines in the last 50 years, a group of economists at the International Monetary Fund (IMF) found. This can largely be attributed to higher interest rates, steep monetary policy tightening, and stricter bank lending standards, according to the IMF.
While the office sector has been the hardest hit, the entire market has felt the sting over the last few years thanks to a souring CRE market. Vacancy rates in multifamily homes have increased, and rent growth is expected to decline in the coming year,…