Office-building prices dropped 26% in November from a year ago for properties built in the financial core of U.S. cities, according to a widely used barometer of the commercial real-estate market.
The past year has been the toughest on office buildings in central business districts, with aftershocks of the pandemic and higher interest both taking a toll on prices.
“Uncertainty around the future need for office space, as well as the shock of higher mortgage rates, has driven a decline in both sales volume and prices,” according to the MSCI RCA commercial property price index for November.
The index tracks repeat U.S. property sales, making it a barometer of price changes on buildings over time. Still, transaction volumes were 60% lower in November from a year ago. That means a series of distressed property sales, such as in San Francisco’s hard-hit downtown, can have a big influence on monthly index readings.
Overall, commercial real-estate prices fell 8% in November from a year ago, while suburban offices retreated 12.4% and apartment buildings dropped 12.1%, according to the RCA CPPI.
The commercial real-estate industry has struggled in 2023, but likely faces another difficult year ahead as a wall of old debt matures into a higher interest rate environment. The Federal Reserve in December kept its policy rate unchanged at a 22-year high of 5.25% to 5.5%, but in a bright spot signaled a potential pivot to rate cuts next year.
Hopes for a Fed policy pivot helped fuel a year-end fall in long-term Treasury yields used to finance the economy, and recently powered the Dow Jones Industrial Average
to a series of record closes, while the S&P 500 index
sits within earshot of its first record close in almost two years.
The benchmark 10-year Treasury yield
was near 3.9% on Thursday, down from a high of 5% in October.
Higher borrower costs caused the housing market to sputter in 2023 after it roared higher during the pandemic. In a sign that restrictive interest rates are starting to bite, more U.S. homeowners missed mortgage payments in November on government-backed loans.