Despite cooling inflation levels and lower costs for business owners, rent prices still remain high and some are even rising. With these increasing rent prices, owners have to make some difficult decisions that have an impact on their customers. In order to offset increased rent prices, many business owners are turning to price increases on their goods and services. However, the lasting effects of inflation from the past four years has caused consumers to be hesitant to pay increased prices, especially for services they are used to being priced at a certain rate. In an article from Yahoo! Finance, a Canadian auto repair shop owner, Peter Yu, discussed the challenges the rising rent prices are causing for his business. After his rent price was raised, Yu decided raising his prices would be cheaper than moving locations. Customers who came to his shop for services would tell him outright that the…
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Banks continue to see an increase in delinquencies on commercial real estate (CRE) loans as interest rates continue to rise and work-from-home policies create empty workspaces. As demand for office space decreases, borrowers have begun to default on their loans, forcing banks and lenders to sell their loans at significantly lower rates or engage in other potentially costly and time-consuming workouts. In reports for the third quarter of 2023, many banks show significant losses, largely due to CRE loans. Morgan Stanley reported setting aside $134 million for credit losses, stating that this was primarily due to “deteriorating conditions in the commercial real estate sector,” according to an article from Yahoo!, Other institutions, like Bank of America, have reported that their loans increased as well. Bank of America’s nonperforming loans increased to nearly $5 billion in the third quarter from $4.27 billion in the second quarter. They attributed this increase to…
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Investing in commercial real estate has always been a high-stakes decision where all aspects should be considered. In recent years, the industry has proven to be an even more crucial part of business decisions, especially as it relates to office space. This growing stress can be attributed to increased interest rates, popularity of working from home, and banking stress, according to an analysis by Moody’s Investor Service. The increased number of employees who prefer to work from home has inherently and exponentially raised the risk for office-based real estate loans. A commercial workplace might not be worth the investment simply due to the number of people willing to utilize the space. This, paired with an overall increase in interest rates across the country, leads to uncertainty in investing in property. These factors affect more of the population than most would expect; Moody’s reported that office real estate loans represent $736…
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