Renewal Discussions Are Ongoing—CMBS Loans Backed by Office Properties With Expiring Tenants Face Uncertain Future

While office properties have weathered the initial impacts of the Coronavirus Disease (COVID-19) pandemic, office demand is in the midst of a paradigm shift as companies determine how much space they will need going forward. With several corporate real estate downsizings and right-sizings, office demand is likely to shrink, forcing occupancy and rental rates to adjust to a new normal. DBRS Morningstar analyzed the upcoming leasing exposure of office properties in three concentrated office markets in the United States: New York, Chicago, and San Francisco.

As of December 2022, there was an outstanding loan balance of $65.5 billion secured by office assets in these three cities, and 20.8% of those loans have rollover risk by year-end 2024. Additionally, we highlight two loans, Worldwide Plaza Trust 2017-WWP and 135 South LaSalle contained in Citigroup Commercial Mortgage Trust 2015-GC31, backed by office properties in New York and Chicago, respectively, as they navigate the challenges of increasing vacancy.