In One Chart: Problem office loans are piling up in Chicago and Houston, but not yet in San Francisco

That might come as a surprise, given that San Francisco has been making headlines for its broader commercial real estate woes, technology sector layoffs and struggles getting workers back to the office.

But so far, it’s other cities like Philadelphia with a 14% rate of office loans at least 30 days delinquent (see chart), or Chicago where 21.2% of its office loans facing imminent default, triggering a transfer of their debt to a “special” loan servicer (Sp. Srv).

Researchers at Barclays based their findings on the performance of commercial property debt in metro areas with at least $2 billion of loans that were packaged into bond deals. They found that, “although there has been much discussion linking issues in the office sector with the very slow pace of return-to-office policies, we see very little correlation between performance of office collateral within various MSAs and Kastle’s weekly occupancy report.”

Kastle’s most recent Back to Work Barometer showed Houston with a 61.6% rate of physical occupancy, above the 50% 10-city average. San Jose’s rate was pegged at below 39%, while the San Francisco metro area was near 45%, when looking at card swipes at more than 2,000 office buildings in 138 cities.

But San Jose and Seattle were outperforming, both with no office loan delinquencies, few specially serviced loans or those on a watchlist for potential problems, according to Barclays.

“Given that tech companies have pulled back from office occupancy and many have embraced remote work, we believe that office delinquencies will continue to rise,” wrote Lea Overby’s credit research team at Barclays, in a Tuesday client note.

While Wall Street’s bond machine, known as the “commercial mortgage-backed securities (CMBS)” market, isn’t the biggest lender on U.S. office buildings, it’s the most transparent place to track loan performance in commercial real estate, because of its monthly public reporting requirements.

Another caveat to the findings is that physical occupancy rates aren’t the same as in-place leases, which many companies continued to pay each month throughout the pandemic. Physical occupancy rates, however, can be a sign of tenant demand for future space.

Higher interest rates, a mountain of maturing property debt and wobbling building prices have been pressuring landlords, with both Federal Reserve Chairman Jerome Powell and Treasury Secretary Janet Yellen recently saying they continue to monitor the sector closely.

Stocks were lower Tuesday, as investors awaited Chair Powell’s two days of testimony to Congress, with the Dow Jones Industrial Average
DJIA,
-0.72%
off 200 points, or 0.6%, the S&P 500 index
SPX,
-0.47%
off 0.4% and the Nasdaq Composite Index
COMP,
-0.16%
0.2% lower, according to FactSet.

Related: Blackstone wrote down its stake in this Chicago office building to $0. Now it’s talking with lenders on the debt coming due

The S&P 500 Office REITs Sub-Industry Index
SP500.40402040,
-3.43%
was down 1.1% Tuesday, but off 21% on the year so far, according to FactSet.