Commercial real estate foreclosures are rising in the US, with foreclosures up 48% year-over-year in September. The numbers in California are particularly striking, with a huge increase of 238%, according to ATTOM’s recent report, as detailed by Business Insider. This peak indicates increasing pressure in the sector. This trend is likely to be influenced by rising interest rates and lingering effects of post-pandemic shifts in demand, particularly for office spaces. States like New York and Florida are also seeing large increases in foreclosures, at 48% and 49% respectively.
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The broader economic shifts are weighing heavily on commercial real estate. Debt continues to mature while demand remains weak. Office spaces have been particularly hard hit as companies adapt to hybrid work models. Many are downsizing or divesting from traditional office space. This transformation leaves landlords with vacancies that they may struggle to fill. The dynamics, combined with tighter lending standards, are creating a perfect storm of financial stress for property owners. It could explain the increase in the number of bankruptcies.
Industry experts, as surveyed by Business Insider, are divided on the prospects. Some see foreclosures continuing to rise, especially in markets where properties are difficult to repurpose or reposition. Many commercial properties – especially outdated office buildings – require substantial investments to be converted into residential or mixed-use spaces. These projects are often too expensive for landlords who are already struggling with mortgage payments and other operating costs.
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However, a recent report from Moody’s offers a more optimistic view, noting an increase in commercial real estate transactions in September, the first increase in two years. This increase suggests that while there may be distressed sales ahead, there could also be buyers looking to purchase properties at lower prices, potentially fueling a market recovery.
