Commercial real estate expected to slip further as market continues to underperform
One-third of the supply needs to be taken out of office real estate, CEO says.
The commercial real estate market is expected to slip further as the market continues its underperformance given that US workers are still reluctant about their full time return to the office, said Katie Koch, CEO of TCW group, as reported in an article by Bloomberg.
“One-third of the supply has to be taken out of the office market,” said Koch at CNBC’s Delivering Alpha conference on Thursday.
Koch also pointed out that $1.5 trillion worth of commercial mortgage-backed securities were maturing soon and they needed to be extended.
What is going on with the commercial real estate market?
?With the shift to hybrid work, along with rising interest rates and the difficulty in accessing credit following a regional banking crisis, the commercial real estate market had been deeply affected.
According to a report published by the National Association of Realtors regarding the state of the commercial real estate market in July 2023, office space vacancy rates rose 13.5% compared to the same time in the previous year.
The industrial sector of commercial real estate also slowed compared to the previous year. Net absorption was reportedly 40% less than it was in 2022. The industrial vacancy rate was raised to 5.4% and moderated rent growth raised to 7.2%. Despite this, rental costs for industrial spaces continued to rise faster than before the pandemic.
Still, Koch remained optimistic about how there were still a number of good properties that piqued the interest of employers who were trying to get their workers to return to the office.
She also believes that the economy is more likely to deteriorate than the consensus opinion, and that an upcoming recession is inevitable since interest rates continue to rise and place pressure on consumers.
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