WFH Impact on Commercial Real Estate Market: Kiplinger Economic Forecasts
Commercial real estate continues to struggle. Office vacancies hit 18.9% in the second quarter of 2023.


The commercial real estate market continues to struggle, despite the housing market preparing for a rebound. To help you understand what is going on and what we expect to happen in the future, our highly-experienced Kiplinger Letter team will keep you abreast of the latest developments and forecasts (Get a free issue of The Kiplinger Letter or subscribe). You'll get all the latest news first by subscribing, but we will publish many (but not all) of the forecasts a few days afterward online. Here’s the latest...
Expect the inventory of existing homes on the market to remain low. Supply has ticked up over the past year but remains historically thin. And no wonder: About 60% of outstanding mortgages have a rate of less than 4%. This makes many homeowners reluctant to sell and give up their low interest rates.
Not surprisingly, new listings have continued to fall over the past few months as rates hover near 7%. Though home prices are down a bit from their peak last year, they’re still high by historical standards and have started to perk up.

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Sales of existing homes have further to fall, after dropping by 3.3% in June from May, and 19% from a year ago. More drops are likely this summer. But sales should gradually turn up by the end of 2023.
Mortgage rates will likely fall below 6% by year-end, driven by a drop in the 10-year Treasury yield and declining spreads between Treasuries and what lenders charge on home loans. That should lead to slightly better affordability for buyers and a pickup in selling.
The office market remains under pressure, as much space goes begging amid the continuing work-from-home trend. The national office vacancy rate reached 18.9% in the second quarter. On the construction front, the total growth in office space inventory in the first half of 2023 stayed well below the historical average.
Vacancy rates have even further to rise as remote work remains popular. American workers on average are coming into the office only half as frequently as in 2019. Metro areas with lots of tech companies will continue to feel pressure, given their high rates of remote work. Asking and effective rents haven’t changed much over the past four quarters as demand for office space has remained volatile.
Financing for offices is drying up. Delinquency rates for securities backed by commercial mortgages on offices rose to 4.5% in June — the highest level since 2018. The rise in delinquencies is leading some investors to stay away from commercial mortgage-backed securities with too much exposure to offices.
This forecast first appeared in The Kiplinger Letter, which has been running since 1923 and is a collection of concise weekly forecasts on business and economic trends, as well as what to expect from Washington, to help you understand what’s coming up to make the most of your investments and your money. Subscribe to The Kiplinger Letter.

Rodrigo Sermeño covers the financial services, housing, small business, and cryptocurrency industries for The Kiplinger Letter. Before joining Kiplinger in 2014, he worked for several think tanks and non-profit organizations in Washington, D.C., including the New America Foundation, the Streit Council, and the Arca Foundation. Rodrigo graduated from George Mason University with a bachelor's degree in international affairs. He also holds a master's in public policy from George Mason University's Schar School of Policy and Government.
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