Lessors of Nonresidential Buildings NAICS 531120

Apr 17, 2025 - Tariffs Could Slow Office Sector Recovery

• The Trump administration’s trade war threatens the recovery of the US office property market, according to The Wall Street Journal. While office leasing activity in the first quarter of 2025 was the strongest since 2019, some businesses are putting plans for new space on hold amid economic uncertainty and recession fears brought on by shifting trade policies. If a slowing economy leads to weaker hiring or layoffs, companies will likely trim their office occupancy to reduce costs. Tariffs could also trigger inflation and higher interest rates, chilling new office development activity. The gradual recovery of the office market is important for cities that have struggled since the pandemic. Offices are the core of cities’ business districts, which generate taxes, jobs, and growth and contribute to local economies by supporting small businesses, including nearby restaurants, bars, and retail.
• As distress in the commercial real estate market persists, more lenders may require property owners to take on force-placed insurance, according to Bisnow. Lenders can require force-placed insurance if a borrower’s coverage lapses, is insufficient to cover potential losses, or fails to provide proof of insurance. Force-placed typically covers the loan balance and offers protection against fire, wind, and underinsured equipment, and its cost is baked into the loan’s monthly payments. The use of force-placed insurance tends to tick upward during widespread downturns. According to commercial real estate data firm Cred iQ, at the end of 2024, more than 10% of all US commercial properties backed by commercial mortgage-backed securities (CMBS) were distressed.

• Demand for coastal industrial properties, such as warehouses and distribution centers, could experience drops in occupancy and value amid the Trump administration’s trade war, according to The Wall Street Journal. A significant drop in global trade and logistics support demand could negatively impact the economies of port regions such as Los Angeles, Houston, New Jersey, and Savannah, Georgia. If trade strife leads to a recession, most commercial real estate markets would be harmed, but coastal industrial real estate, which relies on robust global trade, could face some especially tough headwinds. Demand for warehousing and other industrial space skyrocketed during the pandemic, and developers rushed to bring new industrial square footage online. Demand, however, has since softened, and industrial vacancies are at a 10-year high, according to CBRE.
• Fitch Ratings’ US CMBS delinquency rate rose by seven basis points to 2.96% in March 2025 from 2.89% in February. The March rise was driven by increased office and retail delinquencies and slower resolution activity. Commercial mortgage-backed securities (CMBS) are fixed-income investment products backed by mortgages on commercial properties rather than residential real estate. The delinquency rate is the percentage of commercial real estate loans that were 30 or more days past due or in foreclosure. A rising delinquency rate indicates that an increasing number of commercial property owners cannot pay the mortgages on those properties. Current and prior-month delinquency rates for March were: Office: 6.9% (from 6.72% in February); Retail: 4.03% (from 3.78%); Hotel: 3.51% (from 3.33%); Multifamily: 0.84% (from 0.88%); Industrial: 0.41% (from 0.46%); Mixed Use: 4.56% (from 4.3%); Self-storage: 0.00% (from 0.21%); and Other: 1.43% (from 1.32%).