Commercial Real Estate Market Faces Deepening Woes and Bank Alertness

Morgan Stanley analysts predict a peak-to-trough commercial real estate (CRE) price decline of up to 40%, worse than in the Great Financial Crisis, as more than 50% of the $2.9tn in commercial mortgages will need to be renegotiated in the next 24 months when new lending rates are likely to be up by 350 to 450 basis points. UBS argues that commercial real estate “headlines are worse than reality” and that a repeat of the 2008 liquidity crisis is unlikely, even if credit tightens further. Goldman Sachs says the real risk is in the office sector, with $1.07tn worth of mortgage loans set to mature before year-end 2024, and refinancing will be painful for some commercial real estate borrowers.