The commercial real estate market is now struggling under the weight of higher interest rates and the recent shift in remote work, with foreclosures increasing over 110% year-over-year.
In March 2024 alone, 625 commercial real estate foreclosures were recorded. That is 6% higher than the number of foreclosures reported in February and a 177% increase from the same period last year, according to recently published data from ATTOM.
Among all states in the U.S., California has the highest number of foreclosures in the commercial real estate market in March. At least 187 properties filed foreclosures last month, making a 405% jump from the previous year.
Other states, such as Florida, New Jersey, New York, and Texas, also saw notable increases in commercial foreclosures in March. Texas, in particular, saw a 129% year-over-year increase in commercial foreclosures.
The numbers were calculated based on the commercial properties that had at least one foreclosure filing. This includes default notices, scheduled auctions, or bank repossessions.
Rising Foreclosure Rates in Commercial Real Estate
Foreclosures in the commercial real estate market have risen since May 2020, when many lenders offered loan forbearances to borrowers to help them stay afloat amid a shift to a hybrid or remote working model.
Many of those agreements have now expired or are expiring soon. What further exacerbates the situation is the higher interest rates. The Federal Reserve previously raised interest rates to the highest level recorded since 2021 in hopes of culling soaring inflation rates. The Feds have yet to start reducing rates.
Additionally, there is a decreasing demand for office space as more companies allow employees to work from home. In the last quarter of 2023, 19.6% of office spaces in major cities in the U.S. stayed vacant, marking the highest office vacancy rate recorded in the country since 1979.
"Loans across property types are adjusting to higher interest rates and uncertainty about property values, but the continued fog around the impact of hybrid work adds another challenge for office properties and their loans," Head of Commercial Real Estate Research Jamie Woodwell said in the report.
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