Downward angle icon Downward angle icon. Deutsche Pfandbriefbank has warned that the commercial real estate sector is facing a crisis on par with the 2008 recession. Reinhard Krauss/Reuters Deutsche Pfandbriefbank said it is preparing for a continued decline in commercial real estate, which the bank called “the biggest real estate crisis since the financial crisis.” Shares in the German bank are down about 25 percent this year.
Signs of a commercial real estate crisis continue to grow, with the latest warning coming from German lender Deutsche Pfandbriefbank AG.
In a statement released last week after bond prices fell, the bank likened the current property market crisis to the real estate catastrophe that rocked global markets 16 years ago. It said it had set aside $231.7 million in risk reserves for the next 12 months to deal with pain across the real estate industry.
“Despite these expenses, PBB continues to be profitable thanks to its financial strength amid the biggest real estate crisis since the financial crisis,” the bank said in a Feb. 7 statement.
The bank said it had enough cash and assets to withstand the turmoil and could operate for six months without new capital from investors.
The bank said its “liquidity coverage ratio,” which measures its ability to repay short-term debt, was twice the regulatory requirement and is due to publish details in March.
Concerns about commercial real estate swirled around the world last year as central banks kept interest rates higher than in a decade and the work-from-home trend caused office property values to plummet.
Moody's Analytics reported that in the U.S., the national office vacancy rate hit a record high of 19.6% in the fourth quarter of 2023, about 280 basis points above pre-pandemic levels.
“Despite growing optimism about a possible soft macroeconomic landing and some encouraging news from the labor market, the persistence of the dynamic hybrid model will effectively suppress office demand, making 2023 the darkest year since the global financial crisis,” Moody's strategists wrote in a January note.
For similar reasons, office-to-residential conversions have surged 357% over the past three years, according to an analysis by ResiClub released on Feb. 5.
At that point, more than $150 billion in mortgages on U.S. office buildings will mature in 2024 and about $300 billion will mature in 2026, according to CommercialEdge. Landlords may struggle to refinance that debt as they deal with rising interest rates and falling property valuations.