Reports: Higher Borrowing Costs & Added Inventory Threaten Office Market

A pair of recent reports indicate that higher interest rates and a healthy pipeline of new office space will increase vacancy rates and undermine commercial property values, according to a couple of articles in the Real Deal.

The first article cites a study by Cushman & Wakefield, indicating that 68 million square feet of new office space will be introduced to the commercial market in 2019, the highest figure since 2007. 

Revathi Greenwood, Americas head of research for Cushman & Wakefield is quoted as saying that the U.S. office vacancy rate is expected to rise to 13.9 percent in 2019 from 13.3 this year.

Meanwhile, a second article cites a report by the Wall Street Journal, explaining that the spread between rates and yields have reached their narrowest margin in more than a decade.

In the third quarter of this year, the average rate borrowers paid on loans packaged into commercial mortgage-backed securities was 5.03 percent. That compares to the same period last year, when it was at 4.52 percent, the Journal reported. Average yields, however, have remained the same during the same time period.

The last time yields were this close to interest rates was in 2007, which preceded a 35 percent drop in commercial property prices nationwide because of the financial crisis.