Private credit retreats from office property as AI's impact on demand looms

Private credit lenders are increasingly shunning investments in office property due to uncertainty around future demand, which has intensified amid rapid advances in AI.

Global fundraising for office investments by private credit lenders such as Ares Management Corp., Blackstone and HPS Investment Partners LLC fell sharply to $2.70 billion in 2025, according to data from With Intelligence. This marks a decline of more than 60% compared to 2024 and over 80% from 2023.

Rising concerns about AI's potential impact on white-collar jobs and office space are the latest in a series of challenges facing office investors. In February, investors dumped stocks of companies exposed to office property due to such concerns. Bob Sulentic, chair and CEO of real estate services company CBRE Group Inc., acknowledged in a Feb. 12 earnings call that demand for office space could fall if AI results in fewer workers.

Benefit Street Partners is among the private credit lenders stepping back from office investments.

"I'm not lending at all on office right now. Sometimes the best way to win is not to play," Jerry Baglien, real estate CFO and COO at US-based private credit provider Benefit Street Partners, said in an interview. Benefit Street Partners manages almost $15 billion of real estate credit and equity exposure, of which a single-digit percentage is committed to office property.

"We underwrite risk and uncertainty and there's a lot of risk and uncertainty in office," Baglien said.

The potential impact of AI on the demand for office space appears to be of increasing concern to investors, according to Nicole Lux, senior research fellow and project director for property lending research at Bayes Business School. Lux, who speaks to investors in the first quarter of every year as part of her research, said investors had mentioned the topic for the first time in recent conversations.

"Real estate investors are just really waking up to the problem," Lux said in an interview.

Estimates of the potential impact of AI on employment vary significantly. A March 2026 report by Goldman Sachs suggests that around 300 million jobs globally are exposed to AI automation. White-collar jobs, which tend to be professional, desk-based or administrative roles mostly performed in office settings, are considered the most vulnerable to the technology.

Office property has suffered a sharp downturn in fortunes in the last decade after a long run as commercial real estate's most attractive and valuable asset class. Concerns about AI's impact have added to a surge in remote working since the COVID-19 pandemic that shrank demand for space, while higher interest rates and the proliferation of aged and obsolete building stock have weighed on valuations.

"Whether it's AI disrupted or it's other technology that facilitates remote working, there's just way more base-case uncertainty on long-term need for office," Baglien said.

UBS Group AG recently suspended investor withdrawals for up to three years from a €400 million European real estate fund with office exposure, after redemption requests exceeded the fund's available liquid assets, the Financial Times reported.

Private credit's retreat from office property comes amid worries about rising loan defaults across the private credit industry. The industry's exposure to software companies, in particular, is facing increased scrutiny as investors assess AI's impact on the value of software-as-a-service business models.

Such concerns could have an indirect impact on private credit investment in the real estate sector, according to Keith Breslauer, managing director and founder of Patron Capital. Patron Capital is a European real estate investment manager that has raised €5.3 billion and made more than 200 investments.

"That has, for sure, a degree of contagion risk for the rest of the private credit industry," Breslauer said in an interview. "It may be a separate fund, but it does affect investment committee decision-making and processes."

Fundraising slump

The slump in closed private credit funds focused on office properties since 2023 has contributed to the wider drop in private credit real estate fundraising. Total fundraising for all real estate fell to about $5 billion in 2025 from more than $20 billion in 2023 and about $45 billion in 2019, according to With Intelligence data.

Rising doubts about lending to office investors can also be seen in the increasing rates for US REIT credit default swaps (CDSs), a form of protection that lenders purchase from another party to guard against losses if a borrower defaults. The median price for five-year senior debt CDSs among major US REITs more than doubled to 2.08% between the start of 2020 and March 20, S&P Global Market Intelligence data shows.

The performance of office real estate investment trust stocks since 2020 highlights the sector's challenging outlook. Office REIT indexes in the US, Europe and Asia-Pacific all experienced significant drops in valuation over the past six years, while broader stock markets generally posted gains, according to Market Intelligence data. European office REITs saw the largest decrease, with valuations falling by nearly 60% during this period.

Still, the positive performance of other real estate asset classes in recent years should offset some of the hit private credit investors might suffer from underperforming office investments, Baglien at Benefit Street Partners said. The growth of e-commerce has contributed to a boom in industrial and logistics property over the last decade, while rising demand and a shortage of supply have supported the multifamily housing segment.

"Real estate private credit has grown pretty substantially over the last decade," Baglien said. "But there's been a lot more growth in other asset classes than in office."

Any further slump in office valuations due to AI-related job losses might even present a buying opportunity for private credit investors, who could then repurpose and reposition these assets, Baglien added.

Investors in office properties might also take some hope in the possibility that predictions about the impact of AI are simply wrong, according to Breslauer at Patron Capital.

"The answer to the AI question is: 'No one knows,'" he said. "I don't see it as a major threat at this stage."

However, if the most extreme predictions about AI's impact on white-collar jobs in particular are realized, the entire real estate sector will be in trouble, Baglien said.

"It's not just office that will be impacted — it's industrial, retail, residential," he said. "Office will be the least of our concerns."

With Intelligence is a part of S&P Global Market Intelligence.