The crisis in the U.S. office real estate sector accelerates: the default rate of office building CMBS exceeds 11.8%, reaching a record high, surpassing the peak during the 2008 financial crisis

The crisis in the U.S. commercial real estate market, especially in the office building sector, is intensifying at an unexpected pace. The latest data shows that the default rate on office building loans in commercial mortgage-backed securities (CMBS), a key "barometer" of market pressure, has reached an all-time high. According to asset analysis firm Trepp, in October this year, the default rate for U.S. office building CMBS soared to 11.8%. This figure is not only the highest on record but has also surpassed the peak of 10.7% during the 2008 global financial crisis. Even more concerning is the trend of the crisis spreading. The pressure is no longer confined to the office building sector; the CMBS default rate for multi-family residential properties also sharply rose by 53 basis points in October, reaching 7.1%, the worst level since 2015. The speed at which this storm is forming is astonishing. In just three years, the default rate for office building CMBS has surged by 10 percentage points from 1.8% in October 2022. During this period, the Federal Reserve's continued interest rate hikes have tightened the credit environment, while borrowers are increasingly realizing that the office properties they hold have become outdated under the new economic reality. When these mortgages are securitized and packaged for sale, the risk is transferred to institutional investors worldwide. Structural Changes and the "Maturity Wall" The core issue facing the U.S. office building market is not a cyclical short-term weakness. The remote work model has solidified post-pandemic, currently accounting for about 28% of full-time work hours, nearly six times the pre-pandemic level. Companies are adapting to this new normal by reducing office space, leading to a national office building vacancy rate climbing to 20%. In specific markets like downtown San Francisco and Austin, vacancy rates have even reached 36.9% and 27.2%, respectively. Faced with such a fundamental decline in demand, simple refinancing can no longer solve the problem. The imminent "debt maturity wall" exacerbates the situation. In 2025 alone, up to $957 billion in commercial real estate debt is set to mature, with office building loans accounting for about $230 billion. Many loans originally due in 2024 have been postponed to 2025, as lenders had hoped for a decline in interest rates and a rebound in asset values, but this bet has clearly failed. More debt will mature in 2026 and 2027. Under the dual pressure of rising interest rates and shrinking property valuations, borrowers are unable to refinance to repay old debts, making default inevitable. A series of high-profile default cases are continuously emerging. The Bravern Office Commons, a landmark complex in Bellevue, Washington, long leased by Microsoft, has had its $304 million mortgage classified as in default as of October According to reports, the property was valued at $605 million in early 2020, but two months ago, Morningstar had cut its valuation to $268 million, a decrease of 56%. Also on the default list is the $300 million mortgage for The Factory project in Long Island City, New York. In addition, the Federal Center Plaza in Washington, D.C. has also experienced a default on a "balloon loan" that could not be repaid upon maturity. Meanwhile, some loans have been temporarily "cured" through "Extend and Pretend," such as the HP Plaza project in the Houston area, where the maturing loan was temporarily restored to normal status by extending it again, but this merely postpones the problem to the future. Crisis Spreads: Who Will Bear the Losses? The shockwaves of the office building crisis are transmitting to the broader financial system, with regional banks holding large exposures to commercial real estate loans being the most affected. Among the 158 largest banks in the United States, 59 have commercial real estate loan exposures exceeding 300% of their equity. New York Community Bancorp has already set aside $2.7 billion in losses by the end of 2023 due to this. Once the loan extension strategy fails, these loans must be revalued at market value, putting significant capital replenishment pressure or profit erosion on smaller banks. Another deeper risk lies in municipal finances. The collapse in the value of office building assets directly leads to the evaporation of property tax revenue for local governments. The city of New Orleans has become a "canary in the coal mine" in this regard, as the default on major downtown office building loans and soaring vacancy rates are expected to result in a budget shortfall of up to $1.4 billion by 2027. The reduction in property tax revenue will force the city to cut public services, thereby reducing the attractiveness of downtown, leading to more tenants leaving, triggering more defaults, and creating a vicious cycle. According to the structure of CMBS, the ultimate bearers of the losses are not the banks that issued the loans. Once these mortgages are securitized and packaged for sale, the risk is transferred to institutional investors globally. Media analysis indicates that these investors include bond funds, insurance companies, pension funds, and real estate investment trusts (REITs). As the default rate continues to rise and collateral values shrink, these investors will have to confront the expanding losses