The office space crash is not a prediction anymore. It is an ongoing implosion, slow and quiet, but undeniably real. What makes it eerie is how long it is taking. Fundamentals are broken, pricing is collapsing, and yet the largest office REITs still parade around pretending it is 2019.
Look at BXP, the poster child of office real estate. This was once the titan of trophy towers, flagship properties in cities that used to matter. Now it is bleeding. Last quarter, EPS collapsed to negative 1.45. This quarter, a temporary lifeline showed up in the form of 0.39, but it is hardly sustainable. Yet they keep the dividend steady at 0.98 dollars per share, unchanged since last year. That’s not resilience. That’s a mirage being held together with refinancing gimmicks and investor denial.
Real estate doesn’t collapse overnight. It melts down slowly. One appraisal at a time. One loan extension at a time. The big buildings don’t blow up first. The small ones go dark, then the big ones lose tenants, then the banks start quietly shopping debt packages on Bloomberg terminals while pretending nothing is wrong.
In Chicago, a major office tower just sold for 15% of its original purchase price from a decade ago. Other sales this year have gone off at 20 to 50% of what they sold for just three years ago. This is not distressed pricing. This is repricing the asset class itself. The buyers are not flipping. They are bottom feeders. They are betting on repurposing or eventual recovery. But that recovery has no roadmap.
CMBS yields say everything. It is offering 3.8%, while Treasuries are sitting at 4% or more across the curve. That is a broken risk premium. The spread should be wide. Instead it is inverted. That tells you the credit market is frozen. No one wants to admit the true default risk baked into these mortgage-backed securities. The capital stack on some of these loans is a joke. Tranches are about to find out they are backed by empty floors and broken leases.
Bullish case for BXP
• Still collecting rent from top-tier clients
• Has access to credit markets when smaller players do not
• May benefit from eventual consolidation in the space
• High dividend attracts yield-starved investors
Bearish case
• EPS deterioration accelerating
• Office vacancies still climbing in all major cities
• Cap rates expanding while values shrink
• Forced sales showing asset repricing between 50 to 85% down
• AI adoption and remote work reducing future demand
• Interest rate cliff hitting five year ARMs in 2025 and 2026
• Refinancing at higher rates with lower valuations puts loans under water
This is a classic slow bleed. Office space does not implode like tech startups. It withers under the weight of refinancing, expiring leases, and tenant downsizing. The time bomb is not loud. It is quiet and quarterly. Every office REIT with negative EPS and unchanged dividends is faking stability to keep access to credit open. Eventually, the cracks widen.
BXP will likely survive. But it may become a consolidator of corpses. That’s not bullish. That’s triage. Most small cap REITs in this space are either zombie shells or walking into bankruptcy courts. No one wants to say it yet, but the dominoes have already fallen. Now the lenders are trying to catch them in slow motion.
Every rebound attempt gets weaker. Every bailout talk is quieter. All it takes now is one more minor recession, one more spike in unemployment, or one more wave of tenant layoffs. The music is slowing. The chairs are fewer. And everyone is still pretending the lights are not off.
Disclaimer: This is not financial advice