Downward angle icon Downward angle icon. Getty Images Delinquency rates for loans secured by office properties jumped to 6.5% in the fourth quarter, according to the MBA survey. Office loans led the way in delinquency rates for commercial real estate loans tracked in the survey. “Many properties and loans still face high interest rates, uncertainty about property values and, for some properties, changing fundamentals.”
The office market continues to be plagued by financial difficulties, leading to rising delinquency rates on commercial real estate loans.
Delinquency rates on loans secured by office properties jumped to 6.5% of the balance at the end of the fourth quarter, up from 5.1% in the previous quarter, according to a recent survey by the Mortgage Bankers Association.
Meanwhile, the mortgage delinquency rate increased from 4.9% to 6.1%, the retail loan delinquency rate remained steady at 5%, and the multifamily mortgage delinquency rate increased from 0.9% to 1.2%.
“While long-term interest rates have fallen from last year's highs, which should provide some relief for some loans, many properties and loans still face rising interest rates, uncertainty about property values and, for some properties, changing fundamentals,” Jamie Woodwell, MBA's director of commercial real estate research, said in a press release.
Demand for office space has fallen since the pandemic hit, putting office loans under pressure, and now, three years later, office vacancy rates are at an all-time high as work-from-home and hybrid models take hold.
A recent report from Moody's Analytics described the U.S. office market as being in “uncharted territory,” with vacancy rates hitting a record high of 19.6%.
Capital Economics predicted in a report last month that weak demand and high interest rates could cause office building prices to fall another 20%.
Looking at the bigger picture, the commercial real estate sector has been struggling since rising interest rates made borrowing much more expensive. Some researchers say the sector is on the brink of its biggest collapse since 2008, which could wipe out $160 billion from U.S. banks.
Yet the MBA survey found that while the office market segment of commercial real estate remains volatile, other parts of the sector are recovering.
Despite the fourth-quarter increase, delinquency rates for retail and accommodation secured loans have fallen significantly since the beginning of 2020.