Only a small number of office markets are at severe risk, even though debt service coverage ratios for offices have declined in recent years, according to CommercialEdge's May 2024 national office report.
The DSCR measures net operating income against current debt obligations. It is used by lenders to decide if a business has sufficient NOI to pay back a loan. The ratio has been slipping for years as office cash flow fell and expenses rose, while interest rates and debt costs climbed.
Even so, the report found, "market-level average ratios show only a handful of markets exposed to widespread risk." Most lenders require a DSCR of 1.25.
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