Commercial real estate in the U.S. is facing disaster.

Real estate experts have warned that a potential financial disaster is looming over the American commercial real estate market, which could occur as early as next year. Since the beginning of 2023, markets have been concerned about the situation in the commercial real estate sector, especially after the collapse of Silicon Valley Bank, raising worries about the $1.5 trillion in debt in the sector that is approaching maturity. According to a recent assessment by Capital Economics, office property prices could drop an additional 20% in 2024 due to weak growth and still high interest rates. The company predicted a 43% decline in the value of offices in the U.S., warning that it may take two decades or even longer for real estate prices to return to their peak levels of the early 2020s.

According to the latest working paper from the National Bureau of Economics, banks could lose around $160 billion from commercial real estate, which accounts for about a quarter of the average lender's funds. Other market analysts, such as hedge fund manager Kyle Bass, have predicted losses of up to $250 billion. Major banks like JPMorgan, Goldman Sachs, and Capital One are already trying to offload risky properties from their commercial real estate portfolios. However, some are managing to find buyers and are negotiating for better deals. About 14% of all commercial real estate properties are already in a "negative equity" situation, meaning that the value of the building is less than the remaining loan, and 10-20% of all commercial real estate loans may be in default.

According to the NBER document, this is at the lower end of the forecasted default rate during the Great Depression.

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The percentage of delinquencies on commercial real estate loans has already started to rise, with the default rate on office loans reaching 5% this year, according to data from provider Trepp. Meanwhile, the total amount of commercial real estate loans increased by $37 billion in the last quarter, according to the Mortgage Bankers Association, mainly due to accrued interest on outstanding loans. Office buildings may be left vacant due to the trend towards remote work, according to a recent document from the Treasury Department, which states that some commercial properties may face the same fate as "zombie malls" during the pandemic.

Some shopping centers have since been converted into warehouses, distribution centers, or multifunctional spaces. More creative transformations include a cricket stadium, a police station, and a cannabis farm. The paper states: "There are striking similarities between today's CRE office sector and regional shopping centers before their integration, and there is increasing evidence that CRE may be experiencing a similar decline." Singapore's hospitality giant Ascott is entering northern India with Paras Buildtech Sobha Group. The second furniture factory in Dubai Industrial City. The U.S. has more "millionaire cities" than ever before.