The commercial real estate market in the United States is going through one of its biggest shifts in decades. Office towers that once symbolised economic power now sit half empty. Downtown areas that thrived on daily office crowds are struggling to recover. From New York to San Francisco, the fall of commercial real estate is reshaping cities, businesses and even the banking sector.
What was once considered one of the safest investments in America is now facing uncertainty, falling values and rising defaults.
Empty Offices Are the New Normal
The biggest reason behind the decline is simple: fewer people are returning to offices.
Remote and hybrid work models became popular during the pandemic, and many companies never fully went back. Employees now expect flexibility, and businesses are saving money by reducing office space. As a result, vacancy rates in major cities have hit record highs.
In cities like San Francisco, office vacancy rates have crossed 30%. Even traditionally strong markets like New York and Chicago are seeing rising empty spaces. Buildings that once had long waiting lists for tenants are now offering heavy discounts just to stay occupied.
Falling Property Values
As demand drops, property values are falling sharply. Office buildings bought at peak prices are now worth far less than what owners paid just a few years ago.
Some landlords are facing a harsh reality: their properties are worth less than their loans. This is creating a dangerous situation where building owners may choose to walk away rather than refinance expensive debt.
Experts warn that commercial property values in some urban centres could fall 30–50% from pre-pandemic levels.
Interest Rates Made Things Worse
Another major factor accelerating the crisis is rising interest rates.
For years, cheap borrowing allowed investors to buy large office buildings with heavy loans. But as the Federal Reserve increased rates to fight inflation, refinancing became much more expensive.
Buildings that were profitable at low interest rates are now struggling to generate enough income to cover higher loan costs. Many property owners are now facing loan maturity deadlines they cannot afford to meet.
This has led to growing fears of defaults across the commercial real estate sector.
Banks Are Feeling the Pressure
The downturn is not just a problem for landlords — it’s also becoming a banking issue.
Regional banks in the US hold a large portion of commercial real estate loans. If property owners fail to repay loans, banks could face significant losses. This has already triggered concern among regulators and investors.
Some analysts believe commercial real estate could become the next major stress point for the financial system, especially if defaults rise quickly.
While it may not lead to a 2008-style crash, the risk is enough to make markets nervous.
Downtown Economies Are Suffering
The impact goes beyond property values. Entire city economies are feeling the shock.
Downtown areas relied heavily on office workers. Restaurants, cafés, retail stores and public transport systems all depended on daily foot traffic. With fewer commuters, many small businesses are struggling to survive.
Cities are also facing declining tax revenues. Commercial property taxes are a major income source for local governments. Falling valuations could lead to budget cuts, reduced services or higher taxes elsewhere.
This creates a ripple effect that touches everything from public safety to infrastructure spending.
A Shift Toward Conversions
Despite the challenges, some experts see opportunity in the crisis.
Many cities are now exploring converting empty office buildings into residential housing. With housing shortages in urban areas, turning offices into apartments could solve two problems at once.
However, conversions are not easy. Office buildings are not always designed for residential use, and renovation costs can be high. Still, some developers are already moving in this direction, especially in cities with strong housing demand.
If successful, this trend could reshape urban landscapes over the next decade.
Not All Commercial Real Estate Is Failing
It’s important to note that not every segment is collapsing.
While offices are struggling, other sectors like industrial warehouses, data centres and logistics hubs are booming. The rise of e-commerce and cloud computing has created strong demand for these properties.
Retail is also showing mixed signals. High-end shopping areas are recovering, while older malls continue to decline.
This suggests that the commercial real estate market is not dying — it is evolving.
What Happens Next?
The future of US commercial real estate will depend on several factors: interest rates, return-to-office trends and economic growth.
If companies continue embracing remote work, demand for large office spaces may never fully recover. On the other hand, if borrowing costs fall and cities reinvent downtown areas, the sector could stabilise.
Most experts agree on one thing: the golden era of massive office towers dominating city centres may be over.
A new chapter is beginning — one where flexibility, mixed-use spaces and adaptive reuse will define the future of urban real estate.