The CRE market faces headwinds that could hobble small banks. After the global pandemic sent droves of employees to work from home, many have returned on hybrid arrangements or not at all, spurring vacancies in office buildings.
Goldman's Viswanathan cited several indicators that reflected a weakening market for office real estate: declining occupancy rates, falling appraisal values and rising defaults. More cautious underwriting will probably lead to a further slowdown in real estate markets, Wells Fargo & Co CRE borrowers are grappling with higher costs for refinancing and hedging at a time where it's also getting more expensive to pay back their debts, said Viswanathan at Goldman.
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