US Regional Banks Face Bankruptcy Alarm as Commercial Real Estate Values Plummet and Office Loans Sink

Commercial real estate values are expected to suffer a $480 billion decline next year, following a $590 billion loss in 2023, due to weak growth and high interest rates, according to a report by Capital Economics. The office sector is particularly distressed, facing both elevated interest rates and a structural change in how people work post-pandemic. Falling revenues and rising capitalization rates are predicted to lead to a 15% decline in office values from next year to 2025. The apartment sector also faces headwinds, with rental affordability still a concern and a wave of new apartments entering the market. However, the retail sector is expected to be a bright spot, with retail property predicted to post annual total returns close to 6%. The industrial sector is considered overvalued, and property values are expected to decline 20% peak to trough.