OFR, Report: Five Office Sector Metrics to Watch

“The CRE office sector is substantial, with an estimated value of $3.2 trillion.¹⁷ Should firms reduce their office space requirements to reflect the reality of employees’ WFH preference, the CRE office sector could suffer a contraction, posing a risk to financial institutions that hold loans or CMBS secured by office properties. In fact, should offices contract to the same extent that regional malls have, the sector could suffer up to $900 billion of devaluation over time. (The regional mall sector has lost 22% of its total gross leasable area since 2007, and .22 x $3.2 trillion ≈ $900 billion.¹⁸ ) This could generate significant financial instability through loan defaults, foreclosures, and equity value depletion. Given the CRE office sector’s size and importance, even a more modest contraction could generate instability in financial institutions with exposure to the sector.”