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Commercial real estate stress (2023–)
2023–· Crisis or event
Fact, law or dataA rule, statute, definition or measured number.
Since 2023, falling values, rising vacancy and loan defaults in US commercial property, worst in older office buildings.
See it on the Money & Finance map →How it works
Two shocks hit at once: remote work emptied offices, and the 2022–23 rate jump raised cap rates and debt costs. National office vacancy reached about 20%, a record, by 2024–25 (Moody's; broker figures vary). Office values fell by a third or more from their 2022 peak (Green Street, MSCI). Loans written at 3–4% must refinance near 6–7% with smaller proceeds, so owners inject equity or hand back keys. Office CMBS delinquency passed 11% in 2025, above its 2008-crisis peak (Trepp).
Why it matters
It hits small and regional banks, pension funds and CMBS investors, and shows how rate moves flow straight into property values through cap rates.
Facts, rules and data
Trepp's CMBS delinquency data, Moody's and CBRE vacancy surveys, Green Street and MSCI price indexes, and the Fed's Financial Stability Reports track it.
Debates and risks
Whether most losses are already recognized or still hidden by loan extensions ('extend and pretend'), and whether office demand ever returns to 2019 levels.
Connections (8)
▸Community banks and credit unions carry exposure, heaviest at community banks, to Commercial real estate stress (2023–)Mainstream view
The connection
Commercial real estate loans are a far bigger share of community-bank balance sheets than of the giant banks', often above regulators' 300%-of-capital warning level. A small lender with a few bad office loans has thin capital to absorb them. Credit unions are less exposed, since federal rules generally cap member business lending at 1.75 times their net worth.
When and why
Concern peaked after the 2023 regional-bank failures and New York Community Bancorp's January 2024 losses on office and rent-regulated apartment loans.
How solid is the link?
Bank call reports and the FDIC's Quarterly Banking Profile show CRE concentrations and rising past-due loans; 2006 interagency guidance set the 300% screen.
Debates and risks
Whether small-lender losses will be a slow bleed absorbed over years or cause failures, since many loans have been extended rather than written down.
▸The federal funds rate rose sharply in 2022–23, triggering Commercial real estate stress (2023–)Mainstream view
The connection
The Fed raised its target from near zero in March 2022 to 5.25–5.50% by July 2023. Floating-rate loans' interest costs more than doubled, and buyers demanded higher cap rates. Since value equals NOI divided by the cap rate, a move from 5% to 6.5% cuts value about 23% with NOI unchanged. Maturing loans could not refinance at their old size.
When and why
FOMC decisions from March 2022 to July 2023, the fastest hikes since the early 1980s; hardest hit were 2021-vintage floating-rate apartment and office loans.
How solid is the link?
Property price indexes from Green Street and MSCI fell as rates rose, and CMBS delinquencies climbed in step, per Trepp data.
Debates and risks
How much damage is cyclical, easing as the Fed has cut since late 2024, versus structural from remote work, is debated.
▸Commercial real estate stress (2023–) traces partly to remote work after COVID-19 crash and rescue (2020)Mainstream view
The connection
The 2020 lockdowns sent office workers home, and many never fully returned: badge-swipe data showed US office use stuck around half of pre-pandemic levels into 2025. Tenants shed space as leases expired, pushing vacancy toward 20%. Meanwhile the 2020 rescue's near-zero rates fueled a 2021 boom in buying and lending at peak prices, which the 2022 rate shock then exposed.
When and why
From March 2020 nationwide, hitting downtowns like San Francisco hardest; pre-2020 leases expiring through 2022–26 rolled the impact forward.
How solid is the link?
Kastle Systems badge data, record office vacancy of about 20% nationally (Moody's), and office values falling far more than other property types.
Debates and risks
Whether hybrid work is permanent despite 2025 return-to-office mandates, and how many older offices will be converted to apartments or torn down.
▸When CRE loans go bad: workouts, foreclosure and receivership surged during Commercial real estate stress (2023–)Fact, law or data
The connection
After 2022, rate hikes and remote work pushed office values down while loan rates roughly doubled. Owners facing maturities could not refinance, so loans moved to special servicers, modifications, receiverships and discounted note sales. Office CMBS delinquency hit a record 12.34% in January 2026 and was about 12% in August 2026 (Trepp).
When and why
US downtowns from 2023 on, notably San Francisco, Los Angeles, Chicago and Washington; banks, CMBS trusts and debt funds all took part.
How we know
Trepp's monthly delinquency reports, MBA data, and the June 2023 interagency policy statement telling banks how to handle CRE loan workouts.
Debates and risks
How much office loss is recognized and how much is deferred through extensions is debated; some distressed downtown sales have shown discounts of half or more.
▸CMBS delinquency waves (2009–12, 2020 and 2023–26) measure the lending side of Commercial real estate stress (2023–)Fact, law or data
The connection
CRE stress shows up first in vacancies and values; CMBS delinquency shows when it reaches lenders. Because CMBS loan data are public monthly, the rate became the headline gauge: office CMBS delinquency rose from under 2% in 2022 to over 12% in 2026, tracking office vacancy and falling values.
When and why
In US CMBS since 2023, worst in loans on older downtown and suburban office buildings.
How we know
Trepp's monthly delinquency reports, alongside Moody's and CBRE vacancy surveys and MSCI and Green Street price indexes.
Debates and risks
CMBS is a minority of CRE debt; whether bank loans are as stressed but modified rather than reported delinquent is debated.
▸Jamison Properties' CMBS office defaults in Los Angeles (2024–26) are a Los Angeles case of Commercial real estate stress (2023–)Fact, law or data
The connection
Remote work, downsizing tenants and higher rates hit older office towers hardest. Jamison's Koreatown and downtown buildings lost occupancy, some to under 40%, and appraisals fell roughly 40–60%: the national CRE stress in miniature. Jamison has responded partly by converting offices to apartments.
When and why
Los Angeles, 2023–26, when office vacancy ran around a quarter of space by brokers' counts.
How we know
Appraisal data in CMBS reports, broker vacancy surveys, and city records of Jamison's office-to-apartment conversions.
Debates and risks
Whether older Koreatown offices recover as offices or mostly become housing is uncertain.
▸The US office market: remote work and record vacancy is the epicenter of Commercial real estate stress (2023–)Fact, law or data
The connection
Office values fell by a third or more from 2022 as vacancy rose and higher rates raised cap rates. Loans written at 3–4% must refinance near 6–7% with smaller proceeds, so many owners must add equity, extend or hand back the keys, while lenders and CMBS investors absorb losses.
When and why
Big downtowns such as San Francisco, Chicago and Los Angeles, plus older suburban Class B buildings, from 2023.
How we know
Green Street and MSCI price indexes, Trepp loan data and bank filings.
Debates and risks
How much loss remains hidden in loans that lenders extended rather than resolved.
▸Los Angeles office market (about 25% vacant) is among the hardest hit by Commercial real estate stress (2023–)Fact, law or data
The connection
LA combined the national shocks, remote work and higher rates, with local ones: entertainment-industry cutbacks, a slow return to office, and the City of Los Angeles's Measure ULA transfer tax, in force since April 2023, of 4–5.5% on sales above about $5 million. Vacancy climbed toward a quarter of space, tower values fell, and office loan defaults followed.
When and why
Downtown, Koreatown, Hollywood and West Los Angeles, 2023–26; Brookfield defaulted on two Downtown tower loans in February 2023.
How we know
Broker vacancy surveys, Trepp and MSCI distress data, and recorded sale prices of distressed towers, many far below prior loan balances.
Debates and risks
Whether Measure ULA meaningfully reduced sales is debated; supporters say it funds housing, critics say it freezes large deals.