Is working from home about to spark a financial crisis?

In midtown manhattan reminders of commercial property’s difficulties are everywhere. On the west side, near Carnegie Hall, stands 1740 Broadway, a 26-storey building that Blackstone, an investment firm, bought for $605m in 2014—only to default on its mortgage in 2022. Soaring above Grand Central station is the iconic Helmsley building. Its mortgage was recently sent to “special servicing” (it may be restructured or its owner may simply default). As the sun sets, the underlying problem becomes clear: working from home means fewer tenants. Floors bright with lights, where workers potter about, sit sandwiched between swathes of black.

This is not a new development. Many buildings have stood empty since covid-19 struck. At first, owners hoped to wait out the pandemic, but workers were slow to return, so employers ended up downsizing. Vacancy rates, especially in shabbier buildings, rocketed. Then interest rates rose. Most commercial buildings are financed via five- or ten-year loans. And many of these loans will be refinanced shortly, while rates remain painfully high. Some $1trn in American commercial-property loans will roll over in the next two years, an amount that represents a fifth of the total debt owed on commercial buildings.