In a CNBC interview with Sara Eisen, Goldman Sachs CEO David Solomon warned that there was more pain ahead for commercial real estate. The bank is marking down its holdings as the sector faces a torrent of headwinds. 

The most notable include the rise of remote and hybrid work which is structurally reducing demand for office space. E-commerce continues to take a greater share of spending which is affecting retailers with physical locations. Finally, higher rates have also added to the industry’s woes as many owners are defaulting on properties rather than refinancing loans. 

Due to this, the bank is posting impairments on its loan book and equity holdings which will impact its upcoming results. In the first quarter, the bank wrote off nearly $400 million in real estate loans. Solomon believes that other banks will also be making similar moves.

However, Solomon sees the challenge as being manageable and not significant enough to thwart Goldman’s overall business. But for smaller banks, it could be a bigger problem since they tend to be more heavily exposed to commercial real estate. 

Finsum: Commercial real estate is facing a tough time due to higher rates and reduced demand for office space. In an interview, Goldman Sachs CEO David Solomon shared how the bank is dealing with the challenge.