Capital Economics: Commercial real estate prices in these major U.S. cities will plummet by as much as 45%
According to a recent report from Capital Economics, commercial real estate prices will drop sharply over the next two years in six major U.S. cities, including San Francisco, Chicago, New York, Los Angeles, Boston and Washington, D.C.
San Francisco is expected to suffer the biggest decline, with commercial real estate values in the city plunging 40%-45% from 2023 to 2025.
Commercial real estate prices in Chicago and New York will drop by 30%-35%, while Los Angeles and Washington will drop by 25%-30%, and Boston will drop by about 25%.
Other cities in America’s “mega-west” such as Seattle, Portland and Denver will see similar declines, while southern cities such as Miami, Dallas and Atlanta will see declines of no more than 20%.
This was largely driven by reduced demand for office buildings as the work-from-home trend persisted and the labor market softened.
Capital Economics estimates office job growth has been poor in six “major markets” this year, with the exception of Boston, and growth could slow to below 1% over the next five years.
High rents, high commuting and housing costs, and a high proportion of high-tech jobs in major cities have also exacerbated the office demand problem, since it means that office demand in these areas has been affected by the layoffs sweeping through the tech industry.
Office vacancy rates in the six largest cities are expected to climb to nearly 19% by the end of 2025, according to Capital Economics.
Other experts have been warning of trouble for the commercial real estate sector, as sluggish demand for office buildings in the wake of the pandemic and an expected tightening of credit conditions could spell more trouble for commercial real estate assets.