The office market might recover. It just has to crash first, investors say

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Seventy-three percent of the more than 900 real estate investors who responded to a recent Bloomberg survey said commercial real estate prices would fall through at least late 2024.

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The price of office buildings will recover, but only after a “severe crash,” according to nearly two-thirds of investors who responded to a recent survey.

The overwhelming majority of more than 900 investors who responded to the Bloomberg Markets Live Pulse survey said the office market wouldn’t recover without a severe adjustment to the sector, which accounts for roughly 25 percent of all commercial properties.

An even larger majority of respondents, 73 percent, said they expect commercial real estate prices to fall for at least nine more months, according to the survey results.

“It tends to be a slow reckoning for U.S. real estate when rates change,” Lea Overby, an analyst at Barclays, told Bloomberg. “And the office sector is deeply distressed, which will take a long time to work out.”

The office market is among the worst-performing in commercial real estate, with buildings selling for more than half off in markets across the country, compared to their peak during the pandemic.

Experts have told Inman they expect a slate of aging office buildings to drag on the overall office market until they’re either turned into something new or torn down.

Newer buildings, on the other hand, are still attracting tenants, and CBRE reported that two-thirds of all office buildings are more than 90 percent leased. But older buildings — typically in downtown areas with higher crime and fewer nearby amenities — account for most of the 30-year high vacancy rate of 18.2 percent.

Forty-four percent of respondents to the Bloomberg survey said they expected commercial real estate prices would slide through the second half of next year. Another 29 percent said they expected prices to fall until 2025 or later. Just 28 percent said they expected prices to stop falling this year or in early 2024, according to the survey.

Overby said the risk of office market distress wasn’t too concerning given that it was spread around among an array of investors.

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