In a recent survey, BCG found that many office buildings are at risk of becoming “zombies”-with low utilization, high vacancy levels, and financial viability quickly slipping away.Īmid these developments, rising interest rates are piling significant financial pressure on building owners. This shift has decreased the demand for office space and will steadily lower its value, with implications for building owners and cities that rely on property tax revenue and the economic vibrancy that office workers generate. Since the pandemic, hybrid work has become the new normal. Given the stakes, property owners, cities, and lenders must begin working together to rethink these spaces.īy Santiago Ferrer, Jeff Hill, Paul Steitz, Dimitrios Lagias, Lara Koslow, and Will Bate There will be a major recalibration of the office market over the next three years, forcing the nation to deal with a surge of zombie buildings and very stressed urban corridors. Lenders must implement risk mitigation and servicing strategies, build internal restructuring capabilities, develop a market to sell distressed properties, and expand the product portfolio.Cities need to establish a financial baseline, drive CRE utilization, support the transition to reuse, and replace lost revenue. Property owners must assess and divide their portfolios into five categories, from buildings that can remain as is to those that should be relinquished.This is bad news for property owners, cities, and lenders, all of whom must take some practical next steps: With hybrid work depressing demand for office space and interest rates rising, many office buildings are at risk of becoming “zombies”-with low utilization, high vacancy levels, and financial viability quickly slipping away.
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