Comercial Real Estate continues to struggle, particularly office buildings. Part of the problem is explained by the chart below; after the pandemic, a lot of employees decided to leave the big cities, perhaps to enjoy more space, and the ability to work remotely. What started as flexibility, has somehow become the norm, and now there is a substantial percentage of the workforce that work from home several days a week and have moved 20 miles further from the office compared to pre pandemic standards. As a result, there is a lot of empty office space, and corporations are downsizing or eliminating that unoccupied space, creating a hole in rent rolls, which in turn has erased half (if not more) of the value on some buildings. Those rents were obviously flowing into banks and real estate funds to pay the loans used to acquire the property. Those loans may now be in default. That makes banks and RE funds forced sellers of illiquid assets, creating a domino effect. Office buildings account for 16% of CRE.
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