According to the report, office values may see a large decline in the near future, but sharp deterioration can be avoided if proper precautions are taken. The main reason cited for this anticipated drop is the economic effects of the COVID-19 pandemic, which has caused a significant and lasting decrease in office activity.
The report found that office values in most markets have already started to decline, with some seeing drops of over 10%. It’s likely that values will continue to slide throughout 2020 and 2021, especially in markets that rely heavily on tourism or have a high concentration of service-based jobs. The report also warned that some property types may face particularly steep declines, such as suburban office parks, regional malls, and hotel properties.
However, the report also stated that the decline in office values does not have to be rapid or extreme if the right steps are taken by lenders and borrowers. To ensure a gradual and manageable decline, it recommended that both lenders and borrowers take a more proactive approach to risk management. This would involve working together to develop solutions such as modifying loan terms, providing additional capital, restructuring debt, or restructuring existing loans.
Additionally, the report suggested that lenders should monitor their portfolios closely and be prepared to act quickly when a loan begins to show signs of distress. This could involve providing additional capital or restructuring the loan in order to make sure that the borrower is able to remain current with their payments.
The report concluded that while office values are likely to suffer in the short term, the right actions can help to ensure that the drop is more manageable and that the market is able to recover more quickly.
In summary, the MBA's recent report forecasts that office values are set to decline significantly in 2020 and 2021 due to the economic effects of the COVID-19 pandemic. The report suggested that some property types may face particularly steep declines, such as suburban office parks, regional malls, and hotel properties. To ensure a gradual and manageable decline in office values, the report recommended that lenders and borrowers take a more proactive approach to risk management, such as modifying loan terms, providing additional capital, restructuring debt or restructuring existing loans. Additionally, lenders should monitor their portfolios closely and be prepared to act quickly when a loan begins to show signs of distress. The report concluded that, while office values may decline in the short term, the right actions can help to ensure that the decline is more manageable and that the market is able to recover more quickly.
This article was contributed on Sep 27, 2023
