top of page
Search

Uncertainty for Office Real Estate but Healthcare Remains Unscathed

Real estate experts are warning of a potential looming crisis in the US office real estate sector over the next year. This would be driven by high- interest rates and falling office occupancy.

Earlier this year, reports showed that higher US interest rates, combined with tighter credit conditions and a hybrid work-from-home model that companies were adopting post covid, impacted commercial real estate valuations, making it harder to refinance debt when it falls due.


To tackle inflation, the Federal Reserve hiked the target Fed Funds rate 11 times by 525 basis points in 17 months. Economists are predicting another 25-basis point increase this year and that from then on, the Fed may keep rates on hold for a period before cutting. Economic data will guide its decisions.


At the end of Q2 2023, vacancies in US offices had reached 18.9%, and in their view, this was a structural, not a cyclical trend, which began even before the pandemic. On top of that, office workers are coming to the office half as often as they did before 2019. Office property valuations have declined by 3.3% since Q3 2022, with more to come.


Within the US commercial real estate sector are many subsectors that are not similarly affected. Medical office is one of the real estate subsectors mostly benign to the general trend for various reasons. For the most part, healthcare service providers need to examine patients in a professional environment physically and can’t work from home.


This is reflected in the data, which shows that the medical sector performs differently from the general office sector. It shows that medical office real estate is nearly immune to economic downturns.

15 views0 comments

Comments


bottom of page