Rachel Siegel (Washington Post): ...there's also growing concern that there are financial stability risks from the commercial real estate market and loans that will begin to rollover later this year and next. And that smaller regional banks also disproportionately hold those loans, is there a risk that could mimic the kind of, what we saw with SVB to banks that disproportionately are focused in commercial real estate?
Fed Chair Powell: So, you know, we're well aware of the concentrations people have in commercial real estate. I really don't think it's comparable to this. [T]he banking system is strong. It is sound. [I]t is resilient. It's well capitalized, and I really don't see that as at all analogous to this.
– Post-FOMC Press Conference, 22 March 2023
The Fed this week effectively acknowledged that a recession is now much more likely, that the recent turmoil in the banking system was acting to further tighten financial conditions, and that rates were now at or very close to their peak. Yet, as economic growth slows, inevitably more cracks will start to show. One area that we continue to receive questions about from clients, and that the above quote from Fed Chair Powell highlights, revolves around any potential issues related to commercial real estate (CRE). Hence, in this Economics Weekly, we thought it worth having a look at the current situation in CRE.