- Distressed sales averaged $2.1B per quarter in 2023, slightly below pre-pandemic averages, indicating that distress is growing but not yet widespread.
- Hospitality has been the most impacted asset class by distress, with 7.2% of sales occurring under distressed conditions, followed by the office sector at 3.8%.
- Multifamily properties have the highest share of potential distress, at nearly $71B, followed by office assets at $67B.
Distress in commercial real estate has become a hot topic of discussion as economic challenges continue to unfold. But new data suggests that widespread distress has not yet materialized, as reported in Globest.
Diving Deeper
According to Aaron Jodka, Colliers’ U.S. Capital Markets Research Director, distressed sales in 2023 have averaged $2.1B per quarter.
Notably, this is just below the pre-pandemic average of $2.2B per quarter from 2017 to 2019, and significantly less than 2008/GFC distress levels.
“Based on this metric, distress isn’t widespread; it’s normal,” said Jodka, noting that distress has remained limited since the pandemic began.
Asset Class Impact
However, Jodka also noted that newly troubled loans are now emerging at 5x the pre-pandemic rate, signaling distress could be on the rise.
Hospitality has been the hardest hit by this climbing distress, with 7.2% of total sector sales involving distressed properties. The office sector followed in second place with 3.8% of sales under distressed conditions.
By contrast, the industrial sector has seen little distress, with only $1.7B in distressed assets in Q2, compared to $41B in the office sector.
Viable Opportunities
Despite the limited extent of distress, investors are paying close attention to opportunities to acquire distressed assets at significant discounts.
Jodka highlighted that many properties are selling at prices well below their previous sale values and replacement costs, making them attractive targets for savvy investors.
According to MSCI data, multifamily assets currently have the highest share of potential distress at nearly $71B. The office sector follows closely behind at $67B, with retail, hospitality, and industrial sectors collectively holding between $32B and $36B in potential distress.
Top Distressed Markets
Manhattan leads the nation in distressed assets, with $17.2B currently in distress. San Francisco and Chicago follow with $7.2B each, while Los Angeles and New York City’s boroughs have $4.4B and $3.7B.
However, Jodka noted that market-specific factors drive distress differently. For instance, Chicago’s distress is primarily office-related, whereas San Francisco’s is largely driven by multifamily assets.
