If Interest Rates Come Down Next Year, This ChicagoCRE Analyst Says His Investor Clients Are Ready To Pounce

Office property owners owe banks an estimated $1.2 trillion, heightening concerns over what effect the spiraling market will have on financial institutions, according to a recent report from NPR.

As office vacancy rates rise to between 16% and 30%, surrounding coffee shops, restaurants and retailers have fewer customers to serve and are closing their doors. Concerns also are rising about city tax bases and properties being handed over to banks. 

But not everyone is worried about an extended office space meltdown resulting from a post-pandemic reluctance to return to urban offices. 

"We're not going to see 80% occupancy again, but I don't think a lot of this is going to occur long term. Banks don't want these properties, and they won't do any better with them," Chicago-based RSM US Real Estate Senior Analyst Scott Helberg told Benzinga. 

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Helberg is more positive because of the amount of cash being put away by office space investors and developers. The fundraising market saw a drop in the second quarter to $133 billion, compared to $215 billion during the same period in 2022, according to figures from investment data provider Preqin

But Helberg said that still means a lot of cash is being raised to use by next year. "My REIT (real estate investment trust) clients are actively raising capital right now and ready to pounce," he said. "We will start to see some real activity again in 2024 with REITs waiting for stabilization of interest rates.   

The office vacancy rate in 2023 is higher than during the 2008 recession, but Helberg is not among those concerned that this will be a repeat of owners walking away from their properties. 

"This is not going to happen with all properties because they're working with lenders to extend terms in all ways possible," he said. "We're not going to see properties being handed back to banks like what we saw in 2008."

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