The evolving landscape of commercial real estate in urban areas.
The commercial real estate sector is on edge as approximately 14,000 office properties face loan maturities by the end of 2027, totaling near $290 billion. High delinquency rates and increased defaults add to the complexity for both borrowers and lenders. Many are seeking loan extensions, but declining market conditions may hinder further assistance. As vacancy rates rise and interest grows in converting office spaces for residential use, the landscape is set for significant shifts in the coming years, especially in key metropolitan areas like Atlanta and Denver.
The commercial real estate sector finds itself facing significant headwinds, with approximately 14,000 office properties set to see their loans mature by 2027. These office loans constitute roughly 33% of all office loans, aggregating to a staggering $290 billion. This imminent maturity of loans represents a critical point for borrowers and lenders alike, as they navigate rising delinquency and uncertainty in the market.
Against the backdrop of these maturing loans, new data reveals a troubling trend. The volume of loans extended in 2024 has declined compared to 2023, highlighting an environment fraught with risk for both borrowers and lenders. Delinquency rates for office commercial mortgage-backed securities (CMBS) have surged, reaching 11.08% in June 2025—a 3.5% increase since the previous year. Borrowers are faced with difficult decisions, considering loan extensions that, while providing temporary relief, may not be a sustainable solution as lenders grow more cautious.
The office market continues to struggle with high vacancy rates, stagnant occupancy levels, and slow job growth. These factors have combined to foster an environment of uncertainty. As a result, an increase in the number of discounted office properties is anticipated, and there is growing interest in conversions from office to residential spaces in response to evolving public policies.
Regionally, the Atlanta market stands out with the highest percentage of loans maturing at 50.5%, with a total value exceeding $11 billion. Close behind is Denver, with 49% of its loans set to mature. Other metropolitan areas, including Bridgeport-New Haven, Chicago, and the Twin Cities, are also feeling the pressure as significant loan maturities approach.
The landscape for office sales remains dynamic, with total sales amounting to $23 billion in the first half of 2025, averaging $189 per square foot. Despite downward pressure, Atlanta’s investment performance remains strong, with office assets selling for around $163 per square foot, just shy of its 2019 average. Institutional investors have successfully acquired distressed properties at discounted rates, generating notable profits amidst the tumult.
As of mid-2025, there are 41 million square feet of office space under construction across major U.S. markets, marking a low point for new developments. This cautious approach to construction reflects ongoing changes stemming from the pandemic’s impact on work models. Western markets like San Francisco and San Diego face higher vacancy rates—27.7% and 23% respectively—compared to the national average of 19.4%.
In terms of asking rents, several Western markets reported increases, with San Francisco leading at $63 per square foot, followed by the Bay Area at $52 and San Diego at $45. Notably, in contrast, Chicago continues to hold the lowest sale price for office space at $57 per square foot, despite more than $957 million in sales transactions during the first half of the year. The Twin Cities achieved a 17.5% vacancy rate—the lowest in the Midwest—with construction activity showing strong year-over-year growth.
The outlook for the office market remains mixed, with varying dynamics observed across different regions. Miami reported the highest asking rents at $57, while Austin and Dallas-Fort Worth grapple with elevated vacancy rates. Philadelphia maintains competitive asking rents, averaging under $31 during June 2025. Overall, the commercial real estate market is at a pivotal juncture, working to adapt to the lasting effects of the pandemic while managing the significant challenges presented by maturing office loans.
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