Commercial real estate foreclosures experienced a significant spike last month, with a 48% year-over-year increase in September, according to data from ATTOM. The report from ATTOM revealed that there were 695 commercial foreclosures nationally, marking a 15% increase from the previous month. Although this number is slightly lower than the peak seen earlier this year, it still indicates a notable rise in foreclosures in the commercial real estate sector.
California saw the highest increase in commercial foreclosures, with a staggering 238% jump compared to the same time last year. New York and Florida also experienced year-over-year increases in commercial foreclosures, with rates of 48% and 49%, respectively. Additionally, the delinquency rate for commercial mortgages rose slightly in the third quarter, with the percentage of loans that were at least 90 days late reaching 2.7%.
Experts have been warning of more distress in the commercial real estate market, particularly in the office segment. Demand for second-tier office buildings has decreased since the pandemic, leading to forecasts of forced sales and defaults as debt continues to mature in the sector. Some speculate that the sale of unused office space could result in a wave of conversions to apartments, potentially alleviating issues for office owners and adding supply to the housing market, although such conversions can be challenging and costly for landlords.
Despite these challenges, some more optimistic forecasts suggest a rebound in the commercial real estate market. A Moody's analysis found that transactions in the space had already bottomed, with sales volume increasing for the first time in two years in September. This indicates a potential shift in the market that could lead to improvements in the coming months.