Older buildings with high vacancy rates and impending loan repayments are particularly vulnerable. This downturn extends beyond property owners, affecting city revenues and local businesses that rely on office workers. Property tax revenue could decline, impacting public services and salaries in cities like New York and San Francisco. Local businesses, such as restaurants and shops, are also suffering due to reduced foot traffic from office workers.

The scale of the problem is challenging to assess due to varied financing methods and disclosure rules. However, delinquency rates for office building loans have risen, and foreclosures are climbing. Some buildings have been sold at a fraction of their pre-pandemic prices, highlighting the severe decline in property values.

Long office leases and delayed refinancing due to previously low-interest rates have postponed the full impact on the market. However, continued high-interest rates and the slow negotiation process between borrowers and lenders indicate prolonged distress.

Despite concerns, newer high-end buildings remain largely unaffected, but owners of older buildings with soon-to-mature mortgages are facing significant challenges. The reduced demand for office space, with many employees continuing to work remotely, exemplifies the diminished role of offices in white-collar workers’ lives.

There will be continued pressure on property owners, lenders, and related businesses, with the full extent of the problems likely becoming clearer later this year or in 2025.