2023-06-17 08:04:00
“I think there will be problems with commercial real estate. Since we’ve seen such a big shift in attitudes toward remote work, there has been a change in the demand for office space, especially in a higher interest rate environment,” Yellen said on the CNBC show ” squawk box”.
According to the politician, this might also affect the banks. Since the bankruptcy of the Silicon Valley Bank became known, mostly small and medium-sized banks have held the loans for the corresponding commercial real estate.
Researchers from the NYU Stern School of Business and the Columbia Business School recently calculated that the corona pandemic in the United States caused office values to fall by $506.3 billion between 2019 and 2022, which in some major cities might lead to an “unlucky loop”.
Image: APA/AFP/MICHEL EULER
The researchers estimate that banks own 61 percent of US commercial real estate debt. They also see the potential for the value of New York City office stock to fall 44 percent from 2019 to 2029 as flexible work arrangements weigh on the sector.
“I think banks are broadly preparing for some restructuring and some impending troubles,” Yellen said, adding that overall banks’ liquidity looks strong and stress tests of the largest banks show they have sufficient capital to face the crisis to withstand consequences in the commercial real estate market. She also said banking regulators “will continue to closely monitor a number of banks to ensure they are adequately prepared to deal with it.” Yellen: “Although there will be some pain, the banks should be able to handle the strain.”
Record vacancy rates in cities
Twitter owner and Tesla boss Elon Musk was also critical of the situation in the commercial real estate market. “Commercial real estate values are melting fast. Home values next,” Musk wrote on Twitter. Almost all cities are currently experiencing record vacancy rates for commercial real estate, Musk continued, referring to the home office trend, which has significantly reduced the use of office real estate. At the moment, the downward trend “has not really been experienced. But I think that will be a very serious thing,” said Musk.
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