Story at a glance

• The commercial real estate sector is facing a trifecta of pain: remote work emptied office buildings, property values suffered and interest rates went up.

• In the fourth quarter of 2023, the national office vacancy rate rose to a record-breaking 19.6%.

• That's a problem for banks that hold much of the commercial real estate debt, but it will also impact everyday people whose local governments rely on property tax revenue and whose retirement portfolios include real estate holdings.

(NewsNation) — The commercial real estate sector is facing a trifecta of pain: remote work emptied office buildings, property values suffered and interest rates went up.

In the fourth quarter of 2023, the national office vacancy rate rose to a record-breaking 19.6%, according to Moody’s Analytics. Offices are now emptier than at any point since at least 1979.

That's a problem for banks that hold much of the commercial real estate debt, but it will also impact everyday people whose local governments rely on property tax revenue and whose retirement portfolios include real estate holdings.

If banks do run into challenges, as several did in 2023, it could create a "pebble in the pond effect," said Dan Roccato, a clinical professor of finance at the University of San Diego.

"We saw this play out last year: a bank gets in trouble, and that creates uncertainty in the market," said Roccato. "That uncertainty ripples through the stock market, that uncertainty ripples through the real estate market, and that uncertainty then shows up in your 401(k) plan at the end of the month."

Here's why........

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