2023-11-07 05:40:41 ET
As commercial real estate continues to remain pressured by maturing debt, office buildings have become pretty cheap since the pandemic, and Barclays thinks their prices could slide further.
The research firm said prices for office buildings have dropped ~20%-30% from peak levels, but warned there may be "more pain to come," as offices are yet to feel the full extent of the Federal Reserve's aggressive rate hikes.
Prices for "high-quality and well-located" buildings are expected to fall ~40% from peak valuations, while distressed properties will likely trade based on land and redevelopment costs.
Barclays also noted that office availabilities currently exceed peak levels reached after the 2007 financial crisis, and "will likely remain elevated, as long-dated lease terms have delayed the timing for firms to right-size their spaces."
However, real estate firm JLL expects the office real estate market to stabilize next year. "Q3 brought mixed results for the U.S. office market as fundamentals continue to soften under intense cyclical headwinds created by rate hikes, but considerable progress in return-to-office plans, growing tenant requirements, declining sublease additions, and a tightening market for high-end space all point to stabilization in 2024."
While there have been concerns of oversupply in the office market, JLL said overall U.S. office inventory will likely see a period of marginal decline as deliveries slow in 2024 and 2025.
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Barclays: Office buildings could get even cheaper