At the MIPIM property conference, a Brookfield Asset Management executive highlighted the challenges plaguing the U.S. office market, dubbing it the most oversupplied globally on a per capita basis. Bradley Weismiller, Brookfield’s managing partner for real estate capital markets, emphasized the excess construction in certain U.S. locales, leading to underutilization of office space.
Weismiller lamented the sector’s heavy reliance on debt financing, which has exacerbated the situation. Rising borrowing costs since 2022, coupled with the surge in remote work arrangements, have left many U.S. office spaces vacant, significantly depreciating property values. With office vacancy rates hovering around 20% in major cities, the U.S. market contrasts starkly with Europe’s comparatively lower vacancy rates.
Michael Lascher, Blackstone’s global head of real estate debt capital markets, underscored the growing divergence in property values, with premium-grade sustainable offices faring significantly better than their counterparts. He described the current market dynamics as a tale of “haves and have nots,” indicating a pronounced disparity.
Panelists at the event noted a shifting investor interest towards logistics and data centers, away from traditional office spaces. Blackstone, a leading commercial real estate owner, emphasized the increasing significance of non-bank lenders in property financing, as traditional banks retreat due to regulatory pressures.
David Bouton, co-head of North America commercial mortgage-backed securities and real estate finance at Citi, highlighted regulatory scrutiny on banks’ exposure to commercial real estate, although he noted a more lenient lending environment compared to the 2007-09 financial crisis, thanks to higher capital reserves.
Molly Goldfarb, principal at TPG, discussed the company’s interest in repurposing office buildings into residential properties. However, she acknowledged the formidable challenges associated with identifying suitable assets for conversion.
