China and Canada are major sellers of commercial real estate in key cities such as New York, Los Angeles, and London.
Even prime properties, such as in Lower Manhattan, are being dumped at huge discounts. This is wreaking havoc with landlords, lenders, and municipal governments who are marking down the values of buildings, loans, and tax assessments.
Over a trillion dollars in global equity has already been wiped out, but we are only in the early stages of what will be a long and deep depression in the commercial property market, especially in major US cities. Office utilization rates have not come close to pre-pandemic levels. Since, spiraling crime rates, homelessness, shoplifting, and migrant crises in the US and Europe have plagued the inner cities, pushing other businesses out. Soaring borrowing costs are also creating huge problems for the large volume of CRE loans that must be rolled over in 2024-2026.
Making these problems worse still, is how the collapsing downtown property values will adversely impact municipal finances. Local governments rely heavily on property taxes levied on office buildings, hotels, and other commercial properties, as well as income taxes on surrounding businesses. China's state-owned enterprises have been quietly disposing of these properties over the past two years; now they are doing so less quietly. Canada's largest pension manager just dumped two prime properties in New York and California for huge discounts. Now that price discovery is happening at shocking price points, time will tell when new buyers can be found to stabilize prices.