Moody's Reports Office Vacancies Near 20% in Q1

Moody’s: Office Vacancies Near 20%, Set New Record

U.S. office vacancy rates reached a new high of 19.8% in Q1 2024, according to a preliminary report by Moody's Analytics.

Record-breaking: The office market continues to grapple with vacancy challenges, now surpassing previous peaks seen in the economic downturns of the mid-1980s and early 1990s. Despite positive trends in employment and GDP, the shift towards remote and flexible work continues to spell trouble for office owners, moving the sector 20 bps closer to the 20% vacancy mark.

By the numbers: As the vacancy rate climbs, effective rents have slightly declined by 0.04% in Q1 2024, even as asking rents saw a marginal increase of 0.14%. The discrepancy suggests tenants are leveraging market conditions to secure better deals despite overall stagnant or slightly negative rent growth.

What they are saying: Thomas LaSalvia of Moody's suggests the office sector's troubles aren't over yet but points out that positive economic signs are mitigating a total downturn. Unlike the quick surge in vacancies during the financial crisis due to abrupt economic stress, the current decline in office demand is more gradual, he explained in a recent interview.

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Looking ahead: Despite a gradual rise in vacancies, many companies are still committed to office spaces, countering the worst-case forecasts. Physical presence is important for culture and collaboration. But demand is shifting. U.S. downtown developments of sleek office towers have attracted tenants from older buildings, yet the shift to premium spaces hasn't spurred equivalent new supply. And with the uncertain timing of lease renewals and variable interest rates, predictions on when vacancies might peak remain to be determined.

Centerbridge JV Eyes $1.25B in Marina Deals, Boat Storage Space

Centerbridge Partners is joining forces with Suntex Marina Investors, aiming to scoop up over $1.25 billion in marina properties.

Deal details: This strategic partnership includes not just Suntex, but also other institutional investors. Suntex is set to inject capital and, in return, will earn management fees. To fuel their acquisition spree, they've secured a revolving credit line of up to $600 million, spearheaded by Wells Fargo & Co.

Some background: Centerbridge's involvement with Suntex dates back to 2021, when it played a pivotal role in the company's recapitalization amidst a surge in leisure spending due to the pandemic. Although an IPO seemed on the horizon in 2022 with Suntex potentially valued at over $3 billion, the plan shifted towards private capital fundraising amid a cool down in the IPO market.

Between the lines: Since 2021, Suntex has expanded its marina operations, enhancing storage and hospitality and benefiting local communities. "We're eager to extend our successful partnership, spreading Suntex's high-quality model further across the U.S.," said Matt Dabrowski of Centerbridge Partners.

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Investment strategy: Despite a downturn in new boat sales post-Covid, attributed largely to rising interest rates, the demand for marinas outstrips supply. Centerbridge views this imbalance as an opportunity for Suntex to lead the charge in consolidating the fragmented marina industry. Suntex's acquisition of Westrec in 2022 and Almar earlier this year, boosting its portfolio to 88 properties, underlines this strategy.

As of the fourth quarter of 2023, multifamily loans stood out for having the lowest rate of non-performing loans across all banking categories. This performance is especially notable against the backdrop of last year's concerns. As banks prepare to release their Q1 2024 data, this statistic will be particularly intriguing, especially since federal regulators grouped multifamily loans with office properties in a December letter, indicating a sector to watch closely.

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