American offices are half-empty. That could be the next big risk for banks
. A bank run is what toppled Silicon Valley Bank last month, roiling financial markets and raising fears of a recession in the United States.
The US market looks most vulnerable. Yet the European Central Bank and Bank of England have also recently warned of risks tied to commercial real estate as the outlook for prices deteriorates.Commercial real estate — which spans offices, apartment complexes, warehouses and malls — has come under substantial pressure in recent months. Prices in the United States were down 15% in March from their recent peak, according to data provider Green Street.
Trouble may build as the economy slows. Hill thinks US commercial property valuations could fall roughly 20% to 25% this year. For offices, declines could be even steeper, topping 30%. FILE – Customers and bystanders form a line outside a Silicon Valley Bank branch location, Monday, March 13, 2023, in Wellesley, Mass. SVB Financial Group is filing for Chapter 11 bankruptcy protection, Friday, March 17. SVB Financial Group is no longer affiliated with Silicon Valley Bank or the bank’s private banking and wealth management business, SVB Private. SVB Financial Group ran Silicon Valley Bank up until it was seized last Friday.
About $270 billion in commercial real estate loans held by banks will come due in 2023, according to Trepp. Roughly $80 billion, nearly a third, are on office properties. “That is a scenario we will see now very often,” Christian Ulbrich, chief executive of global commercial real estate services giant Jones Lang LaSalle , told CNN. The question, he continued, is what lenders will do in that situation, and whether banks are sitting on such sizable loan portfolios that they need to take “significant losses.”Banks have less capacity to stomach financial blows these days.
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