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3 signs the commercial office market is in distress

On Behalf of | Sep 12, 2022 | Commercial Real Estate |

Whether you are a long-term investor in commercial real estate or are only have a passing interest in it, you probably know the market has been incredibly hot in recent years. After all, according to the Boston Business Journal, commercial rents in the area were the sixth-highest in the country in January 2021.

The time to get a good deal on commercial office space may be on the horizon. Here are three signs the commercial office market may be heading for some distress.

1. Office vacancy rates

The principles of supply and demand suggest that when there is more supply, rental rates tend to decrease. This is because renters have more options and, by extension, more bargaining power to negotiate lower rents.

According to Axios, office vacancy rates in the U.S. have climbed from 9.7% to nearly 13%. If the trend continues, commercial property owners are likely to have to lower rent to attract tenants. Regrettably, they also may struggle to pay their mortgages.

2. Loan defaults

In business, it sometimes makes sense to stop making loan payments. Doing so, though, is not an action any business owner should take lightly. If you see a greater number of commercial property loaners defaulting on their loans, you can assume the commercial real estate market is cooling.

3. Changed behaviors

Commercial office space has been less important with many employees opting to work from home over the last couple of years. If employees decide not to return to conventional offices, having office space may no longer be a priority for business leaders.

Because commercial tenants often lock in multi-year leases, it can take some time to notice a slowing in the office rental market. Ultimately, though, there are some good indicators that a significant correction is currently underway.