“Commercial real estate values ​​are declining rapidly”

“I think there will be problems with commercial real estate. Since we’ve seen such a major shift in attitudes towards remote work, demand for office space has changed, especially in a higher interest rate environment”Yellen said on the CNBC show “Squawk box”.

According to the politician, this could also affect the banks. Since the bankruptcy of the Silicon Valley Bank became known, mostly small and medium-sized banks have held the loans for the corresponding commercial real estate.

Researchers from the NYU Stern School of Business and the Columbia Business School recently calculated that the corona pandemic in the United States caused office values ​​to fall by $506.3 billion between 2019 and 2022, which in some major cities to a “misfortune loop” could lead.

The researchers estimate that banks own 61 percent of US commercial real estate debt. They also see the potential for the value of New York City office stock to fall 44 percent from 2019 to 2029 as flexible work arrangements weigh on the sector.

“I think the banks are broadly preparing for some restructuring and trouble ahead”, Yellen said, adding that overall bank liquidity looks strong and stress tests of the largest banks show they have sufficient capital to withstand the impact on the commercial real estate market. She also said that banking supervisors “a number of banks will continue to monitor closely to ensure they are adequately prepared to deal with it”. Yellen: “While this will come with some pain, banks should be able to handle the strain.”

Record vacancy rates in cities

Twitter owner and Tesla boss Elon Musk was also critical of the situation in the commercial real estate market. “Commercial real estate values ​​are declining rapidly. Home values ​​next”, Musk wrote on Twitter. Almost all cities are currently experiencing record vacancy rates for commercial real estate, Musk continued, referring to the home office trend, which has significantly reduced the use of office real estate. Currently there is a downward trend “haven’t really experienced it yet. But I think that’s going to be a very serious matter”said Musk.