Debt volatility limiting landlords' access to capital

Contributors:

Office refinance volume, which had been a robust source of capital for existing landlords, has declined more than 20% year-over-year and over 40% against pre-pandemic peak levels as sharp increases to interest rates have driven up the cost of financing. $16.9 billion in refinance volume in the third quarter represents the lowest level in over five years.
Rising rates and spreads are causing landlords to limit capital expenditures: over the past 12 months office owners have spent an average of $9.38 p.s.f. on capital improvements, a nearly 25% decline from 2019 when landlords spent $12.46 p.s.f.
In efforts to preserve demand, owners are dedicating a greater share of capital expenditures to tenant improvement allowances to avoid a decline in concessions offered for new leasing: over the past 12 months T.I. allowances comprised over 40% of landlords’ capex, while in 2021 T.I.s accounted for just 32.8% of capex.

Public-private office pricing disconnect is intensifying