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S&P Global — 10 January 2025
By Nathan Hunt
Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy
It was the proverbial perfect storm for commercial real estate. The COVID-19 pandemic fundamentally changed work patterns for many Americans, leading to a mass exodus to home offices from office towers. Then, a spike in inflation led to higher interest rates on loan renewals, making it difficult for owners of commercial real estate (CRE) to roll over debt. This meant that for those banks, insurance companies and institutional investors with CRE exposure, a decline in revenue from rents coincided with a rise in financing costs. Many market participants have worried that CRE losses could hit all at once, create deleveraging issues and affect the larger US economy. According to S&P Global Market Intelligence, the losses will dribble in over the next few years. Markets and regulators have already made strides in pricing in potential CRE losses, although the extent of these losses will remain opaque to the broader market for the foreseeable future.
In 2024, roughly $950 billion of US CRE mortgages will mature. Maturities will continue to rise until 2027, peaking at $1.257 trillion. Typically, CRE mortgages would be refinanced at the current interest rate. Because the Federal Reserve is slowly unwinding a rising rate cycle, many borrowers will end up paying for significantly higher debt service. The average interest rate for loans originated in 2024 through August was 6.2%, while the average rate on the old, maturing mortgages was 4.3%. This cost difference is significant.
Because of changing work habits, the CRE loans of greatest concern are for office spaces. Of the $950 billion in CRE loans maturing in 2024, approximately 10% involve office buildings. The transaction volume for these office space loans has remained low, which means there is very little price discovery on their current value. Investors have been wary of CRE, particularly for older buildings, and may find it challenging to re-lease these spaces, which may require capital investments to become appealing to tenants.
Many large banks with exposure to office CRE have built up reserves against potential losses. According to S&P Global Market Intelligence, large banks such as Wells Fargo, PNC Financial , Truist Financial and Citizens Financial have built reserves to 8% or more of their office portfolios. Regulators have been scrutinizing banks with large CRE exposure. Investors have also been heavily discounting banks that meet the regulatory definition of having large exposure to CRE loans. However, the number of banks meeting this definition has declined over the past two years as banks have unloaded some assets through sales and have not taken on additional exposure.
Insurance companies have also taken large positions in the CRE market. In the second quarter of 2024, US life insurers increased exposure to mortgages 6.1% year over year and 1.5% sequentially to an all-time high of $752.77 billion, or just over 13.7% of net admitted cash and invested assets. While much of that exposure is in industrial and multifamily properties rather than office spaces, the mortgage loan asset quality for US insurers has been in decline.
Today is Friday, January 10, 2025, and here is today’s essential intelligence.
In this episode of S&P Global Commodity Insights' Energy Evolution, co-host Taylor Kuykendall dives into the future of nuclear energy. With rising global energy demands and an urgent need for sustainable solutions, nuclear power is once again at the forefront of energy discussions. Listen in to hear about the challenges and opportunities that nuclear energy presents, including advancements in technology and changing public perceptions. Experts also discuss the recent surge in interest from tech giants like Microsoft, Google and Amazon, who signed power purchase agreements for over 3 GW of nuclear capacity to meet the energy needs of their data centers.
—Listen and subscribe to the podcast from S&P Global Commodity Insights
Economic and federal policy uncertainty heightens the importance of fiscal management in preserving credit quality, and could strain US local government finances in 2025. Although S&P Global Ratings doesn't expect a significant change in the magnitude of downgrades, it does expect fiscal buffers accumulated in the past three years will erode, heightening instability in a sector that has remained remarkably steady since the pandemic.
—Read the article from S&P Global Ratings
Since the 2010s, the dynamics of large-cap US equity risks have shifted. Fifteen years ago, the market was dominated by cycles alternating between risk-taking and risk aversion, often referred to as a “risk-on/risk-off” dynamic. A key feature of this period was the higher correlation between stock and sector performance, especially during market downturns.
—Read the article from S&P Dow Jones Indices
US LNG exports to Latin America and the Caribbean grew around 40% in 2024 compared to the previous year, S&P Global Commodity Insights data showed Jan. 7. The US exported around 426 Bcf of LNG to the region in 2024, up from the 303.18 Bcf exported in 2023. The previous highest annual level for US LNG exports to Latin America was 631.52 Bcf in 2021.
—Read the article from S&P Global Commodity Insights
The Turkish rebar market is facing significant challenges in 2025 due to global oversupply and low demand, but there are glimmers of hope on the horizon. The potential for reconstruction in Syria and the impact of geopolitical developments could create opportunities for recovery, sources told S&P Global Commodity Insights. A Marmara mill source noted factors contributing to difficulties in Turkish rebar market include relatively low import scrap prices and a lack of demand both in export and domestic market, all of which are intensifying competition among market players.
—Read the article from S&P Global Commodity Insights
After being on opposite sides of a lawsuit, Walt Disney Co. and fuboTV Inc. are joining forces to create a new aggregated offering. Disney and the sports streamer said Jan. 6 that they reached a merger agreement under which Disney will combine its Hulu + Live TV business with Fubo to create a new virtual multichannel video programming distributor. The combined company, which will be 70% owned by Disney, would count some 6.2 million subscribers, including 1.6 million from Fubo and 4.6 million from Hulu + Live TV.
—Read the article from S&P Global Market Intelligence
Please join S&P Global Ratings sector leads for the oil and gas industry for a live interactive webinar on the key drivers and what we expect for in 2025. Look for our published outlook in advance of this webinar.
—Register for the webinar from S&P Global Ratings