“The U.S. office sector is under intense pressure given a slow return to office, tighter access to capital and a sharp increase in funding costs,” said Ana Lai, CFA, credit analyst, S&P Global Ratings. “As a result, the credit quality of many office REITs has deteriorated significantly. Currently, about 40 percent of the rated office REITs are speculative grade compared to 20 percent for the broader rated REITs portfolio. We expect rating pressure to persist in 2024, given that about 55 percent of ratings on the office sector are on negative outlook.”
[U.S.] 2024 key assumptions:
Significantly higher financing costs: Although the 10-year Treasury yield is only about 50 basis points higher than it was one year ago, many REIT bond spreads have widened materially year-over-year. Moreover, tighter bank lending (with tougher underwriting) is contributing to significantly higher yields on secured debt as well.
Tighter access to capital and limited