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Moody’s commercial real estate documentary series

Work From Where: Building the future of work and urban life

The office sector is evolving, leading urban areas to turn to "24-hour cities." High vacancy rates persist, but public-private partnerships and quality investments are driving the shift. Success depends on occupancy and upkeep, while investors deal with debt and market risks. All the while, generative AI is transforming market analysis, making smart decisions crucial in this evolving sector.

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Episode I

Where We Are

Journey through the heart of downtown Manhattan to witness the transformation of commercial real estate. Offices and restaurants once swarmed with early morning commuters are now adapting to the rise of hybrid work models.

We delve into the broader implications, questioning whether the traditional office is becoming a relic of the past or simply needs reimagining. Amid this evolving landscape, this episode foresees a future in which temporary decisions give way to deeper structural changes.

By understanding the cyclical office market, we gain a clearer picture of the delicate interplay between space demands and capital markets. With US office vacancy rates at an all-time high, we explore how lenders and investors are adopting a "wait-and-see" approach in this uncertain environment.

Episode II

Where We Go

Through the organic development of neighborhoods where mixed-use properties seamlessly blend work, living, and leisure, continuous economic activity is reshaping urban landscapes. We call these destinations "24-hour cities."

These cities rely on private and public partnerships to undergo this transformation and drive economic success. In the heart of New York City, Hudson Yards serves as a prime example, showcasing the innovative design of a multi-use development tailored for an upscale, forward-thinking workforce.
 

Across the United States, we’re witnessing a "flight to quality," where investments shift toward top-of-the-line office buildings and diverse cities, fostering economic reinvention as a result. Rental rates are a key indicator of this market change. As we currently skid across the bottom of the market, we’re seeing more favorable leasing activity through the mechanism of price discovery.

Episode III

Where to Watch

It’s clear now that building performance — how well a building is occupied, maintained, and utilized — has a direct impact on its financial metrics, such as rental income, property values, and investment returns. Where does that leave the investors and lenders who have invested in properties currently suffering from lower returns? 

This leads us to the "wall of maturities," which refers to a significant volume of debt maturing simultaneously. This presents a complex challenge in the office sector driven by three main risk factors: credit risk, liquidity risk, and market risk — all of which are currently exacerbated.

This situation creates a domino effect where the impact on one property can ripple through an entire portfolio, potentially affecting various property types. In the past, portfolio managers would have had to manually parse through news and numbers to assess their risks, but we are now in the midst of a generative artificial intelligence (GenAI) revolution. This technology is transforming the way stakeholders can respond.

The office story is far from over. Just as we have seen highs and lows throughout history, this sector is continuing its remarkable evolution.

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How Moody’s can help

Managing commercial real estate (CRE)-related risk is an ongoing challenge, but the strategic incorporation of GenAI can be a game-changer in navigating today’s economic climate. Moody’s is at the forefront of this innovation, offering capabilities that fuse proprietary customer data with extensive CRE datasets to provide swift insight into potential risk exposures.

We designed the Early Warning System (EWS) with CRE professionals’ specific needs in mind — mapping relevant, real-time news to the specific assets that might be under duress due to sudden external events.

Implementing EWS is like hiring a risk analyst, and it’s designed to flag risks, stress-test assets, and relay critical insights to key stakeholders in a timely manner. Let EWS help you monitor your portfolio with a proactive, AI-powered approach to risk.

Learn how we are arming our commercial real estate customers with tools that combine data, speed, and intelligence to redefine traditional portfolio risk management.

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