The Office Isn't Dead. But It's Definitely in Trouble.

COMMERCIAL REAL ESTATE · Intelligence Brief · Rookonomy

The Short Version

$2.5 trillion in commercial real estate debt is coming due over the next three years and a lot of it was borrowed when interest rates were basically zero. Now rates are higher, office buildings are emptier than ever, and property values have crashed. This isn't 2008. There's no single dramatic collapse. It's a slow grind and it's creating the biggest distressed investment opportunity in over a decade.

The Numbers

Wait, What Even Is This Problem

Here's the setup.

During COVID, everyone stopped going to offices. Companies downsized. Leases expired and weren't renewed. Buildings that were 90% full in 2019 are now sitting at 70% capacity or worse.

At the same time, the loans used to buy and build those buildings were taken out when interest rates were near zero. Those loans are now maturing. The owners need to refinance but two things have changed:

1. The building is worth less. Office values are down 37% from their 2022 peak. When the value drops, the bank will only lend you a smaller loan against it. So you need to find extra cash from somewhere to cover the gap.

2. The new loan costs way more. A loan that was fine at 3% interest is a disaster at 6–7%. Your rental income doesn't cover the repayments anymore.

That's the refinancing wall. And it doesn't peak until 2027.

The Global Picture

This isn't just a US problem.

United States: National office vacancy hit 19.6–22.5% by end of 2025, up from 12.5% pre-pandemic. More than 1 in 9 dollars of office debt in the structured finance market is delinquent. Chicago's 311 S. Wacker Drive sold for $45 million in June 2025. It sold for $302 million in 2014. That's an 85% loss.

Australia: Melbourne CBD vacancy is 17.9%. Sydney CBD is at 13.7%. Perth surged to 17%. The entire national vacancy rate is 15.2% and rising. The wild part? Even prime buildings are struggling. Sydney, Adelaide and Melbourne all recorded higher prime vacancy than secondary vacancy. The "just buy quality" playbook isn't working uniformly.

London: Actually holding up better. Central London vacancy fell to 7.1%, lowest since 2020. New-build vacancy in the City? Just 0.6%. But older stock? Still struggling. The flight to quality is real and it's brutal for B-grade buildings.

Hong Kong: Rough. Grade A office vacancy hit a record 15.5%. Kowloon East is at 24.5%.

Singapore: Tight. CBD vacancy is just 5.2%. Not every market is in crisis.

The pattern: prime assets in global financial hubs are fine. Everything else is getting crushed.

The CMBS Signal You Should Know

CMBS stands for commercial mortgage-backed securities, basically, bundles of commercial property loans that get sold to investors. It's the most transparent part of the CRE debt market because prices update constantly.

Right now, the CMBS office delinquency rate is 11.31%. That means more than 1 in 9 dollars of office loans in the structured finance market isn't being repaid on time.

Why does this matter beyond CMBS? Because the bank-held loans, which are marked less frequently and often get quietly extended are probably in similar or worse shape. Banks have been playing "extend and pretend" (roll the loan, avoid the writedown) but that only works for so long when $875 billion is coming due in 2026 alone.

Follow the Money

Where the Smart Money Is Going

The distress is creating real opportunities. Here's where capital is actually moving:

Private credit / debt funds are stepping in where banks have pulled back. Senior and mezzanine lending on stabilised assets, preferred equity for refinancing gaps, all offering returns that weren't available in the low-rate era.

Distressed debt buyers are acquiring delinquent CMBS positions at discounts, aiming to either restructure or foreclose and take the asset at a low basis. $43.5 billion in delinquent CMBS is a lot of deal flow.

Office-to-residential conversions are getting government support (tax breaks, fast-tracked permits) in cities like New York, Chicago, SF, and DC. But the economics are hard cause most big open-plan CBD towers can't easily become apartments. The candidates are older, smaller-floorplate buildings that are functionally obsolete as offices.

Non-office CRE is still attractive. Industrial CMBS delinquency? 0.80%. Data centres, logistics, student housing, healthcare, build-to-rent, institutional money is flowing there, not into empty office towers.

The Rook's Take

Here's the thing everyone gets wrong about this story.

It's not "offices are dead." It's "the wrong offices, with the wrong debt structures, at the wrong valuations, are in serious trouble."

Prime buildings in global financial centres - London City, Singapore CBD, Sydney's best towers, are actually recovering. Leasing at record rates per square foot. Flight to quality is real.

The problem is everything else. Class B and C buildings in secondary markets, older stock that can't compete with new green-certified towers, and anything with a 2021-vintage loan that assumed 3% rates forever.

The Australian angle is interesting because our superannuation funds are exposed on both sides as investors in listed REITs and CRE debt funds, and as holders of bank equity now facing CRE writedown risk. The RBA has flagged this. Worth watching.

The opportunity for people entering finance right now: restructuring advisory, distressed debt, real estate private credit. The $875 billion maturing in 2026 and $652 billion in 2027 has to go somewhere. Someone has to structure those refinancings, advise on those loan sales, and price those distressed acquisitions. That pipeline is enormous and it's here right now.

What Happens Next

2026: The refinancing wall peaks. $875 billion in maturities. Banks either extend, sell loans, or force sales. Expect more transaction volume but at reset prices.

2027: Another $652 billion matures. If rates haven't dropped significantly, the stress continues.

The conversion play: Cities that make office-to-residential economics work will see meaningful stock removal. Less supply + more housing = potential recovery in those markets. Watch the policy settings.

The bear case: Rates stay high, hybrid work becomes permanent at current levels, and the "extend and pretend" loans finally roll over in a wave of forced sales. Further 10–15% value declines in secondary markets.

The bull case: Rate cuts improve refinancing economics, return-to-office continues (office attendance already up to 4 days/week average), and capital flows back into prime assets at reset prices. The recovery is already showing in leasing data, it just hasn't hit valuations yet.

Go Deeper

• Mortgage Bankers Association 2025 CRE Survey of Loan Maturity Volumes (mba.org)

• Trepp CMBS Delinquency Reports — trepp.com (monthly updates, free summaries)

• Property Council of Australia Office Market Report July 2025 — propertycouncil.com.au

• Green Street Commercial Property Price Index — greenstreet.com

• JLL Office Market Dynamics Q2 2025 — jll.com.au

• CRE Daily — credaily.com (good free newsletter on US CRE)

Rookonomy publishes financial intelligence for people learning to see the move. Not financial advice.