Office Sector Faces $289 Billion Maturity Wave Through 2028

A wall of office loan maturities is set to test the sector throughout the next three years, and the metros already struggling with empty space stand to feel it most.

According to Yardi Matrix’s September office report, roughly 14,000 office properties carry loans that have recently come due or will mature by the end of 2028. Those loans total $289.2 billion or 33.5% of all office loan volume tracked. The concern is when most of the debt was written: 58.8% originated before 2021, when lenders and owners still expected demand to hold up through the life of the loan.

That assumption has not aged well as national office vacancy is currently 17.8%. Moreover, office-using employment slipped 0.2% year-over-year in August, per the Bureau of Labor Statistics, and physical occupancy has hovered near 55% for the last few years, according to Kastle’s Back to Work Barometer. Now, owners have to refinance against income and property values that have both declined.

Location also matters as metros with high office vacancies carry more risk. In fact, eight of the top 25 metros report a vacancy rate above 20%, and those markets hold $61.6 billion in maturing loans — 7.1% of all office debt tracked — with more than half written before 2021. Seattle looks to be the most exposed, pairing a 24.7% vacancy rate with $8.3 billion in maturing volume, 70.1% of it pre-2021. Then, California’s Bay Area ($13.5 billion, 22.8% vacancy) and San Francisco ($12.6 billion, 25.9% vacancy) follow, alongside Portland, Ore.; Houston; San Diego; Austin, Texas; and Denver.

As a result, refinancing options have narrowed while interest rates stay elevated. Accordingly, Trepp reported that the office CMBS delinquency rate climbed to 12% in August, and nearly half of repeat-sale office properties have been sold at a discount in recent years. Notably, lower valuations widen the gap between what borrowers owe and what new debt will cover, often pushing owners toward fresh equity, extensions or a workout.

The new office supply is also affected: Only 2.7 million square feet is under construction in central business districts (0.2% of stock, down 61.3% year-over-year). But, that eases a future problem, not the near-term one as values are likely to stay under pressure until the maturities clear.