CRE: More Vacancies and Sublease Space and Greater Mortgage Delinquencies

The stubborn persistence of COVID-19 and the resultant Work From Home (WFH) practices are causing a growing number of companies to reduce their real estate footprint and even unload existing office space in the form of sublease space. Additionally, a growing number of commercial property owners are unable to meet their mortgage payments as the prolonged pandemic affects rental income streams from commercial tenants. This has caused a surge in commercial mortgage-backed securities delinquencies.

WeWork Terminates Leases in Baltimore and NYC

Coworking company WeWork has terminated its full-building lease at 149 Madison Ave., NYC a boutique office building owned by Columbia Property Trust, according to Globe Street. The beleaguered coworking startup never took possession of the 115,000 square foot building.

WeWork also terminated a 69,000-square-foot lease for two floors at Baltimore’s Wills Wharf neighborhood, reports the Commercial Observer.

WeWork first signed a lease for space in the $1 billion waterfront development at 1201 Wills Street in 2018. It was to be WeWork’s first location in Baltimore and was set to open this year.

San Francisco’s Office Vacancy Nearly Doubles from 2019

San Francisco’s office vacancy rate rose to 9.9% from 5.5% in the second quarter of last year, according to the San Francisco Chronicle. The city’s office market has been hit by mass layoffs, with the unemployment rate jumping to 12.6% in June, according to state data, up from 1.8% last fall as San Francisco-based companies such as Airbnb, Uber and Yelp layoff thousands of workers.

Meanwhile, companies signed new leases totaling 266,000 square feet in the second quarter, according to brokerage Cushman & Wakefield, the lowest level based on data going back to the 1990s. The previous low of 556,640 square feet was in the first quarter of 2009 during the Great Recession. The data does not include renewals.

Seattle’s Sublease Space Increases by 13 Percent

Citing research by NKF, Connect Seattle revealed a 13.2% increase in sublease space since April 1st in Seattle. The amount of sublease space climbed to more than 2.45 million square feet and pushed up the availability rate to 3.8% on a base of 64.8 million square.

Seattle’s CBD is taking the hardest hit with 55 subleases offering nearly 1.6 million square feet of space to the market.

D.C. Office Vacancy Hits All-Time High in Q2

Washington D.C.’s office vacancy rate reached an all-time high of 15.2% in the second quarter of 2020, according to CBRE’s Washington D.C. Office MarketView Q2 2020, surpassing the 15% mark for the first time on record.

According to the report cited by Connect Washington D.C., during the second quarter, a number of developers delivered new office buildings with large blocks of available space. Additionally, D.C. posted 300,000 square feet of occupancy loss in the second quarter.

Commercial Mortgage-Backed Securities Delinquencies Surge

Delinquencies in commercial mortgage-backed securities last month had their largest one-month surge since Fitch Ratings began tracking the metric nearly 16 years ago, reported CNBC.

The delinquency rate hit 3.59% in June, an increase from 1.46% in May. New delinquencies totaled $10.8 billion in June, raising the total delinquent pool to $17.2 billion. 

Fitch breaks down the following CMBS delinquency rates:

  • Hotel: 11.49% (from 2% in May)
  • Retail: 7.86% (from 3.82%)
  • Mixed use: 4.17% (from 0.95%)
  • Office: 1.92% (from 1.39%)
  • Industrial: 0.67% (from 0.28%)
  • Multifamily: 0.59% (from 0.41%)