Elon Musk has echoed this sentiment, suggesting that the phenomenon of empty offices is becoming widespread. In a recent interaction on Twitter, Musk responded to a user’s question about empty office buildings, pointing out the significant drop in the shares of Boston Properties, a major office real estate investment trust (REIT). Musk’s response indicates that the problems in the commercial real estate market are not isolated but rather a widespread issue.
The deteriorating situation in the commercial real estate sector has also led to an increase in delinquencies. Real estate analytics firm Trepp reports that delinquency rates on commercial office properties have more than doubled in the past six months, reaching 4%—the highest level in five years. This indicates that investors have been waiting for this rise in delinquencies due to higher rates and lagging office demand.
The commercial mortgage-backed securities (CMBS) market, which accounts for about a fifth of total U.S. commercial real estate lending, serves as an indicator of the sector’s health. Offices, in particular, have been closely watched as companies aggressively reduce their space. Sublease areas have reached or neared record highs in many markets, driven by the erosion of demand from large tech companies and the trend of companies allowing leases to expire or renewing with smaller footprints.
