Office Markets Are the Real Estate Crash We Need to Worry About

While everybody's been sweating over the housing and labor markets, the office market has been streaking toward a hard landing.

The Federal Reserve's new hawkish stance has pushed stocks lower and heightened concerns about the direction of the US economy over the coming year. Anxiety has been centered on labor and housing crashes, but investors, city mayors and economic developers have kept up hopes for improvement in the office market. It's best to let go of that wishful thinking.

I can offer two reasons why office-market watchers aren't as pessimistic about the future of the sector as they should be — and not nearly pessimistic enough compared with all the negativity about housing and employment. First, they're still thinking about office activity as a pandemic-related behavioral change that's still in the process of normalizing. Reality: Office buildings are interest-rate and economically sensitive assets with deteriorating fundamentals despite still-booming employment growth.

Second is a lack of imagination. We know what it's like when unemployment hits 10%, home prices plunge and there are millions of foreclosed homes. But we — particularly we in the media whose professional lives are so wrapped up in cities and offices — struggle to imagine how that plays out in business districts.