The pain is just starting for commercial real estate - and plunging prices could reignite the banking crisis and choke the US economy, Columbia professor says
He explained that soaring interest rates and the shift to remote working have slashed the value of office space in cities. He expects that to translate into lower property-tax revenues, and the budget shortfall to force urban authorities to raise taxes or spend less on education, transportation, sanitation, and other public services. If cities become more expensive and less appealing, people are likely to move out, cutting real estate values even more and causing a downward spiral, he said.
The professor pointed to data indicating that office usage, lease revenues, and the number of new leases being signed remain well below pre-pandemic levels. Vacancy rates have also surged to their highest level in about four decades, he noted. Van Nieuwerburgh emphasized that many Americans are exposed to that slump. Pension funds, real estate investment trusts , and other entities have invested significant sums in CRE, and the office segment specifically.
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