US Federal Reserve Chair Jerome Powell said recently that downtown office districts in many cities are "very underpopulated". 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.
Office vacancy rates across the country have risen to 13.5 per cent in 2023 from 9.5 per cent in 2019, and could hit 16.6 per cent at the end of next year, said credit company Fitch Ratings in a December report. Of US$737 billion in office property mortgages, US$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.
This was one of the weaknesses the embattled New York Community Bancorp faced as its stock tumbled last week.