More office building owners are selling at sharply discounted prices. That suggests that they don’t expect to see an office market turnaround happen anytime soon.
NEW YORK – Property owners are beginning to unload troubled office buildings at fire-sale prices, a sign that the office market slump is moving into a new phase where more landlords are ready to capitulate.
Office building values have steadily declined during the pandemic, while higher interest rates have also negatively affected the sector, making it much more difficult for building owners to refinance a property or fund the building improvements and amenities needed to attract tenants.
The recent rise in troubled office building sales indicates that more owners believe weak demand is here to stay. And the volume of distressed office deals is expected to increase even further in the months to come, as billions of dollars’ worth of mortgages need to be refinanced.
Marked-down sale prices will likely, in turn, put even more downward pressure on the office market.
Ten-X, one of the largest auctioneers of commercial property online, listed 91 office properties in the first quarter, up 44% from the first quarter of 2022. The second quarter of this year is on track for similar growth.
In the first week of May, Ten-X held 11 successful auctions of office properties, and most of those traded at sharp discounts. On average, the sellers met the market at prices that were about 31% below initial expectations. During the same period one year ago, office sellers accepted an average 7.1% discount.
Source: Wall Street Journal (05/16/23) Grant, Peter
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