Declining Trend of Demand for Office Real Estate around the World



According to CBRE, office vacancy rates in 10 of the world's 17 major cities reached their highest levels since the 2008 global financial crisis at the end of March this year. 

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The COVID-19 pandemic has shifted the way we work and resulted in a mass exodus from office space. With more people working from home, companies are reassessing their real estate needs, leading to a decline in demand for commercial properties around the world. According to CBRE, office vacancy rates in 10 of the world's 17 major cities reached their highest levels since the 2008 global financial crisis at the end of March this year. 

Declining Trend of Demand for Office Real Estate around the World

The United States is feeling the impact, with a 20% office vacancy rate in San Francisco, according to CBRE. The demand from information technology companies that previously supported the market also fell sharply as many companies cut their workforce amid slowing growth. Beyond the US, there has been a similar trend in Hong Kong, mainland China and Tokyo, where office vacancy rates have risen to record levels or reached a threshold level for growth and decline.

In addition to the office segment, hotels and other commercial real estate are also facing a decline in activity rates. This raises concerns about the risk of financial instability when real estate loans become past due. Some big investors have already started pulling out of the US hotel business, such as Park Hotels & Resorts, the owner of the Hilton San Francisco Union Square, which recently announced stopping its mortgage payments on the property and handing the hotel over to the bank for processing.

The increasing value of mortgage real estate has stimulated demand for loans, with outstanding loans granted by the US commercial banking sector to owners of offices and other commercial establishments reaching nearly $3 trillion. However, over-lending to the real estate sector could push banks to the edge. When real estate owners find it difficult to refinance their debt, they have to sell the property, which lowers the price and value of mortgaged property, making it harder for the bank to recover the debt. This can become a big problem hindering the economy from growing.

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Financial regulators are increasingly concerned about the impact of this situation on the financial system. The risk is a financial crisis, caused by weak demand for office space at a time when real estate loans may go past due. If hedge funds fail, it could seriously affect the banking world. With reduced traffic in city centers, shopping malls, hotels and other commercial establishments have also recorded reduced activity rates. Therefore, there is cause for concern about the long-term financial stability of the commercial real estate market.

Declining Trend of Demand for Office Real Estate around the World

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