Commercial real estate was facing serious issues at the end of 2021 due to the increase in remote work and changes brought about by the pandemic. This resulted in a situation of excess inventories amid declining demand. However, these issues have been exacerbated by recent bank failures.
In a MarketWatch article by Joy Wiltermuth, she covered a research piece by Lisa Shalett, the Chief Investment Officer (CIO) at Morgan Stanley Wealth Management, who warned that commercial property prices could drop by as much as 40% and even have negative effects for other parts of the economy.
Shalett’s concern centers around the trillions of dollars of commercial mortgage debt set to mature over the next decade. And, the pressure is more acute in the current environment especially given high rates.
In terms of the broader economy, Shalett sees collateral damage from offices at depressed occupancy levels in terms of the businesses and municipalities that rely on people working in the cities. In her opinion, the stock market’s performance in Q1 reveals that investors are being ignorant of these risks.
Finsum: Morgan Stanley’s Lisa Shalett lays out some concerns over the commercial real estate market, why it could get worse, and its potential broader impacts on the economy.