US Federal Reserve Chair Jerome Powell said recently that downtown office districts in many cities are 'very underpopulated'. Photo: ANDREW CABALLERO-REYNOLDS / AFPThe popularity of remote work in the United States has emptied office buildings, a cause for worry as their value falls and owners risk losses on property loans -- in turn putting pressure on smaller banks.
Of $737 billion in office property mortgages, $206 billion -- around a quarter -- are set to mature this year, according to the Mortgage Bankers Association.This means that when loans come due, they will need to be refinanced where vacancy rates are high in some cities and valuations are lower.The risk is a"chain reaction" where banks"risk seeing their borrowers default and as a result, experience stress on their capital," said EY chief economist Gregory Daco.
Retirement funds or insurance companies, among others, could also be impacted if they have commercial buildings in their portfolios.Powell noted that the Fed works with establishments that face risks, saying:"We have identified the banks that have high commercial real estate concentrations, particularly office and retail.
In January, it reported a $185 million provision for the recently ended quarter, on the back of a deterioration in its real estate loan portfolio.