The Federal Reserve’s pivot from aggressive monetary tightening to the possibility of (pre-emptive) rate-cuts has spurred talk about whether 2024 will be a ‘no landing’ or ‘soft landing’ scenario (avoiding a recession). Optimists have been pointing to the rates market that shows nearly six cuts priced in by the end of the next year. However, it is hard not to consider the fact that by anticipating these cuts, the market could be signaling more economic stress to come than The Fed expects (with its growth and employment forecasts).

For severely strained building owners across the US, these hopes of interest rate cuts, which would lower the borrowing costs, could not come soon enough as there is still no sign of a bottom in this distressed market.

Take, for instance, the San Francisco office market, where a new report from local newspaper SFGate, citing CBRE data, shows office vacancy in the crime-ridden metro area hit new highs in the fourth quarter of 2023. The vacancy rate topped 35.9%, a jump from last quarter’s 34%. CBRE said this is another 1.4 million square feet of occupancy loss (equating to an entire Salesforce Tower).

CBRE said 6.7 million square feet of office space flooded the market in San Fran this year – the second-worst year since 2020. This was primarily due to large sublease spaces being emptied.

Despite the flood of office space, asking rents have fallen too slowly to attract demand. In the last quarter, there was only a slight decline of 2.5% in asking rents.


Colin Yasukochi, executive director of CBRE’s Tech Insights Center, told the paper San Fran’s CRE market has yet to bottom and expects vacancy rates to rise through the first half of 2024. 

Yasukochi noted, “The office market should stabilize and begin recovery as economic conditions improve and interest rates decline during the second half of 2024.” 

Recent office tower sales in the downtown area have been absolutely disastrous:

In early November, the tower at 201 Spear St. sold for $60 million, or about half of its 2013 value, sources confirmed to the San Francisco Chronicle. 

According to the Real Deal, the 14-story tower at 115 Sansome St. recently sold for $35 million, significantly less than its $83 million value in 2016. 

Another Real Deal report from last month said the 13-story tower in the North Financial District, located on 550 California Street, sold for 60% off. 

Market-clearing prices have been established in the metro area due to a combination of remote work, and an imploding metro area plagued with lawlessness, due mainly to failed social justice policies pushed by radical Democrats.

A recent Bloomberg survey of professional traders might be correct about what’s coming down the pipe:

  • Two-thirds of the 919 respondents believe the office tower market needs to crash before a rebound can be seen.
  • About half believe tower prices will trough in the second half of next year.

That much-needed, though extremely painful, cleansing of the over-abundance (and over-pricing) of office space in America may now be delayed – can-kicked – as despite a handful of Fed members in recent days trying to walk back the market’s high rate cut expectations, they just hit a new high of 158bps (more than 6 rate cuts).

What would prompt such a massive and sudden reversal by The Fed – a serious, sudden recession? And that won’t be good for CRE.


CRE turmoil is expected to worsen in the first half of 2024 despite this hope that interest rate cuts will save the day.*


However, for the industrial real estate market, OC Industrial Group remains bullish for 2024.


*Summary by ZeroHedge