Moody's: $17B in mortgage bonds backed by office buildings coming due in 2023
By Ashley Fahey
Tampa Bay Business Journal
Published: Jan 18, 2023

Some $17 billion in mortgage bonds backed by office properties is coming due this year, in an environment where the outlook for the U.S. office market is cloudier than ever and companies continue to shed office space to cut costs.

That's according to a recent report by New York-based Moody's Analytics, which also noted office building commercial real estate loans, maturity extensions and potentially even maturity failures could become commonplace amid weak office market performance and interest-rate hikes.

The number of mortgage bonds backed by office properties coming due was $7 billion in 2022, and $4 billion in 2021, making 2023's $17 billion on the verge of maturing a significant increase.

Xiaodi Li, senior economist at Moody’s Analytics, said there hasn't yet been a surge in the delinquency rate for office properties, which would be the first sign of widespread distress in the office property sector that could then ripple through the U.S. financial system.

The average vacancy rate nationally in the fourth quarter ticked up to 18.7%, according to Moody's, still short of the record-high 19.7% vacancy observed in 1991 but approaching that figure. The vacancy rate in Q4 also surpassed vacancy rates observed earlier in the pandemic, with the previous pandemic high being 18.5% in Q3 2022 and in Q2 2021, according to Moody's data.

Victor Calanog, head of commercial real estate economics at Moody's Analytics, said overall sentiment is clearly stacked against office properties right now. In past recessions, job cuts were a primary source of cost-cutting measures for employers, and while that's happening across the U.S., some companies are looking to make more aggressive real estate cuts to offset layoffs.