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The trend toward remote work in the U.S. has led to rising office vacancies, putting owners at risk of loan losses and putting pressure on small banks.
Federal Reserve Chairman Jerome Powell said there could be bank failures, but they would not involve large banks. The national office vacancy rate increased from 9.5% in 2019 to 13.5% in 2023, and is expected to continue to rise to 16.6%. The commercial real estate industry has lost a third of its value, potentially triggering wider impacts.
Banks must renegotiate business loans but may need to refinance when interest rates rise. This could be a huge blow to smaller banks, with pension funds and insurance companies among others also affected.
The Fed has worked with at-risk banks to mitigate the possible impact.
(Source: AFP Image source: freepik)
