Commercial Real Estate Recovery Expected to Take Years

A report from S&P Global shows sectors of the economy are in danger of refinancing risks, especially in office spaces.

Foreclosure on a CRE property is not often “the best course of action” when loan lenders look at restructuring debt, however, unavoidable, according to the report.

While office-sector conditions in some coastal cities remain challenging, the Kansas City region enjoyed a comparatively active first quarter of 2023, JLL said in its most recent quarterly update—with a caveat.

“The Kansas City office market has 2.5 million square feet of tenant requirements that will likely keep activity strong through 2023,” the report said. But it also noted that “vacancy rates are likely to continue to increase, however, as the market is not immune to broader trends that point towards overall office footprint reductions.”

Despite strong leasing activity in this region, JLL said, “Overall negative absorption pushed vacancy higher, to 20.8 percent, as broader trends in the office market favor smaller occupied footprints.”

Current credit quality for rated REITs and CMBS will likely become a more common trend in the coming years as banks continue to feel greater pressure. United States banks account for the majority of CRE lending.

Read the full S&P Global analysis, here.

Posted June 13, 2023