Over 200M SF Of CMBS-Backed Office Leases Expiring In Next 2 Years
As the office market continues to see record high vacancies nationally, the sector is bracing for hundreds of millions of square feet of leased space to expire over the next few years.
In 2024 and 2025, 217M SF of office leases in buildings backed by CMBS loans are coming due, according to new data from CRED iQ, first reported by Globe Street. That breaks down to 112M SF this year and 105M SF next year.
Over the next five years, more than 500M SF of CMBS-backed office leases are set to expire, according to CRED iQ’s analysis.
"A high-level view of lease expirations provides a general sense, or foreboding in some instances, of the mechanics that the office sector needs to work through as the property type falls out of favor with lenders, investors, and other CRE industry constituents," CRED iQ’s report says.
"Lease expiration analysis offers an important dimension to evaluate when and where the next pockets of elevated office distress will materialize," it adds.
The New York metro area has the largest amount of space coming due of any U.S. region, both over the next two years and through 2028. In 2024 and 2025, the city will see 32M SF in CMBS-backed leases expiring. When taken through 2028, that number tops 173M SF.
The report highlights other cities with large amounts of CMBS-backed space expiring in the next two years, including Los Angeles, with 15M SF coming due, Chicago with 12M SF expiring, Philadelphia with 9M SF and San Francisco with 8M SF.
Just because these leases are expiring, doesn’t mean that the space will be vacated, the report notes. But as the remote work shift has led companies to shrink their spaces and gravitate toward higher-end buildings, landlords with large expirations face a significant risk of downsizing or departing tenants.
The downsizing trend has led office vacancy rates to hit new highs of upwards of 20% in some cities and upwards of 30% in others. CMBS-backed office distress, the share of loans that were delinquent or in special servicing, was at 9.9% as of December, according to CRED iQ, more than double that of twelve months prior.
