CCP Commercial Office Digest

Commercial Office Digest

Callahan Capital Partners is a real estate private equity firm focused exclusively on the origination, acquisition and management of high quality office assets in select urban markets throughout the United States.

“When you see delinquencies rising and foreclosures rising, that means we’re approaching the acceptance stage of the grieving process for office properties — and that’s healthy…But we’re not at the bottom yet.”

The New York Times reports on the current office environment noting that about a quarter of existing office property mortgages held by all lenders and investors, or more than $200 billion, are set to mature this year. Few investors have been willing to lend new funds which could put an end to the “extend and pretend” environment that has existed during the past few years, and put further pressure on office pricing.

“Lenders don’t want (to) own these assets, but unless they just absolutely want to move on from a property, they’re trying to see their way to a better market,”

Despite plenty of dry powder looking to deploy into real estate in the US, investors have been sitting on the sidelines, waiting for prices to reset and the distressed opportunities to present. However, as lenders figure out how they want to play this environment, distressed sales have been only a small piece of overall commercial real estate deal volume up until now. Read more here.

“There’s a trend toward longer lease terms as firms regain confidence, moving away from the short-term extensions prevalent during the pandemic.”

Law firm leasing activity is up, and lease terms are trending longer according to Savills’ US law firm activity report for Q1 2024. Law firms are preferring newer buildings, with over 70% of relocations signed moving to newer assets.

“As occupiers gain more clarity about the economic outlook and how hybrid work impacts their space needs, the share of renewals will decrease as more occupiers move to better quality space.”

A CBRE report (the cover of which is graced by CCP’s 110 N Wacker asset in Chicago!) details the disparity between what CBRE identifies as “Prime” vs. “Non-Prime” space with regard to vacancy and rents. The report’s prediction is that Prime space will continue to become more scarce (and thus continue to command higher rents and demonstrate lower vacancy rates) as tenants continue trading up in quality with limited new supply coming online.

Charts We Are Talking About

A Q1 2024 capital markets report from Newmark shows the steep cliff of potentially troubled loans maturing this year. Most of these loans are office assets, and many have previously been extended up until this point, putting pressure on an ultimate resolution.

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