US office market is world’s most oversupplied, Brookfield tells MIPIM

By Thomson Reuters Mar 13, 2024 | 8:58 AM

By Iain Withers

CANNES, France (Reuters) – The troubled U.S. office market is the world’s most oversupplied and property investors have taken on too much debt, a Brookfield Asset Management executive said on Wednesday.

“Per capita, it’s the most oversupplied office market in the world,” Bradley Weismiller, Brookfield’s managing partner for real estate capital markets, told the MIPIM property conference.

“That’s really the story. Unfortunately we (the U.S.) build too much of it in certain places … and it doesn’t need to be used as office anymore,” Weismiller said at the event in Cannes.

“The sector as a whole borrowed too much money,” he added.

A punishing rise in borrowing costs since 2022 and a jump in people working from home has emptied many offices in the United States, pummelling the value of many property assets.

Office vacancy rates – at around 20% in cities – are much higher in the U.S. than in Europe. Concerns about lenders has hammered some regional bank shares this year.

Blackstone’s global head of real estate debt capital markets, Michael Lascher, said that there was a polarisation in values between high-quality sustainable offices and the rest.

“The difference is really stark. It’s very much a story of haves and have nots,” Lascher said during a discussion on U.S. real estate at MIPIM .

Clients are more interested in investing in logistics and data centres than offices today, panelists said.

Blackstone is the world’s largest commercial real estate (CRE) owner, and Lascher said non-bank lenders were increasingly important for financing property as banks retreat due to higher regulatory constraints.

Regulators were putting a “clear focus” on CRE exposures at banks, said David Bouton, co-head of North America commercial mortgage-backed securities and real estate finance at Citi.

But he said that lenders were more accommodating to investors than during the 2007-09 global financial crisis because they had higher capital buffers.

Molly Goldfarb, principal at investor TPG, said the company was looking to convert more offices into housing but that it could be “incredibly challenging” to find suitable assets.

(Reporting by Iain Withers; Editing by Tommy Reggiori Wilkes and Alexander Smith)