The office market in the United States may see $1 trillion of losses after office values plummeted as businesses move to remote working following the COVID-19 pandemic, according to an expert.
Speaking at the Global Alts conference in Miami Beach, billionaire and Starwood Capital CEO Barry Sternlicht said office properties in the country, which were once worth $3 trillion, are now worth only $1.8 trillion, adding that it is the "one asset class that never recovered" from the COVID-19 pandemic, as quoted by Bloomberg.
"The office market has an existential crisis right now," Sternlicht noted.
In addition, Sternlicht also slammed the Federal Reserve for leaving a "serious mess" in capital markets and the real estate market when it abruptly hiked its interest rates in an effort to corral rampant inflation.
How Is the Office Market Doing in 2024?
The fourth quarter of 2023 saw the U.S. officer market mark its fifth straight quarter of negative net absorption of office space as businesses cut back on costs by reducing physical spaces and shifting towards hybrid or remote work. The overall office vacancy rate in major cities rose to 19.6% in the last quarter of 2023, marking the highest level recorded since 1979.
President Joe Biden's administration has also encouraged developers to turn vacant office buildings into apartments to ease the country's housing crisis. Developers are set to create more than 55,000 apartment units from office buildings this year, per a study published by apartment listing service RentCafe.
What Are Other Experts Saying?
Sternlicht is not the only one to predict a wipeout of the commercial real estate market. Cantor Fitzgerald billionaire chairman and chief executive, Howard Lutnick, also predicted that the market would default between $700 billion to $1 trillion over the next two years.
"I think it's going to be a very, very ugly market in owning real estate over the next 18 months, two years," he said.
Capital Economics also estimated a $590 billion loss in commercial real estate property values in 2023, an additional $480 billion loss this year, and another $120 billion loss in 2025.
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