Key Takeaways
- The commercial real estate market may be starting to turn a corner but isn’t entirely out of the woods.
- Pain in the commercial real estate market may have been averted thanks to a strong labor market, but recent signs of cooling don’t bode well for CRE.
- A rate cut by the Federal Reserve would be beneficial for banks and property owners but could exacerbate CRE problems if they come after the economy slows down significantly.
Pockets of opportunity in the lackluster commercial real estate market may surface in the second half of the year, analysts say. But cracks in the U.S. labor market offer yet another challenge for the $23 trillion sector.
Beset by chronic office vacancies, rising defaults and falling valuations, the CRE market has struggled in the face of the Federal Reserve’s policy of maintaining high interest rates to combat inflation.
High interest rates helped push overall CRE delinquency rates to 5% in May, up from 3.6% in the same month a year ago. A fifth of the $4.7 trillion in outstanding U.S. CRE mortgages mature this year—in a market where values have plunged about 30% since the Fed began raising rates.
Consistently strong jobs growth has provided the market some relief amid those challenges. However, a cooling of the labor market could undermine that support.
How the Jobs Market Affects Commercial Real Estate
The decline of the commercial real estate market began as offices sat empty after pandemic-era restrictions and…
