The Federal Reserve Economic Data chart shows a long-term trend of e-commerce growing relative to total retail. Although people are starting to go back to shopping malls, the pandemic really pushed e-commerce to the forefront. Commercial RetailĬommercial retail is the same. Again it really depends on the specific area. But for areas that are booming where there are office space shortages, there may be pockets of growth. Raising lease rates is probably out of the question with the amount vacant office spaces available. Although these office spaces may still have paid leases, with an impending recession and with a lot of people working from home, it is possible that some tenants may terminate their leases early or shrink their space. This adds to the problem for the banks, and they may end up foreclosing on office spaces that only have a few tenants signing leases.Īside from the aggressive overbuilding of office spaces in certain big cities, there is also the trend of working from home and quiet quitting. A recent report by CommercialEdge shows occupancy rates for commercial real estate in many big cities as very low. Vacant Office Spacesĭemand outstripping supply is not the typical case, though, for cities such as Los Angeles, San Francisco or New York, where there is an oversupply of commercial real estate, specifically with a lot of vacant office space (registration required). But it may also be strong in areas where demand outstrips limited supply. Unless there is a shortage, prices look to stay depressed in certain areas due to a lack of buyers. In general, across the sector, there will likely be fewer buyers as they have trouble getting cheap mortgages and development loans. However, I definitely see some signs of trouble ahead in certain areas. While there may be particular places a real estate crash could happen, I do not believe there will be a crash in the entire sector. Effects Of A Possible Commercial Real Estate Crash Many regional bank stocks are getting hammered by the markets these days if you check the regional bank indices, but some investors looking for bargains are buying as well. Many banks holding these older instruments could see their asset values drop, like what happened to SVB.
As the Fed raises rates, this has caused banks to have devalued assets in their books because older mortgage-backed securities and long-term treasuries acquired before have become less marketable compared to the newer higher interest bonds.
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