CRE lending standards have tightened considerably in response to the Federal Reserve's aggressive interest rate hikes over the past sixteen months to combat inflation. Furthermore, depressed office-badge swipes and other occupancy metrics indicate a downshift in demand for office space.

The latest alarm bell of sliding CRE prices in downtown areas across major US cities is the sale of an office tower at One South Street in downtown Baltimore. The 30-story building was sold in June for $24 million, a 63.6% discount versus the tower's 2015 sale of $66 million, according to The Baltimore Sun. 

Opened in 1992, the tower has 479,000 square feet and is the first sale of its kind in the post-pandemic era. The Sun confirmed that Virginia-based American Real Estate Partners sold the building in a short sale to New York-based BHN Associates. 

"Occupancy drives value and many buildings downtown are struggling to maintain that occupancy," said Terri Harrington, a commercial real estate broker. The latest firesale could indicate more panic selling is ahead. 

Some argue remote or hybrid work has forced a downward shift in office demand -- but that's not entirely the case, well, not at least in crime-ridden Baltimore. The depressed office building demand is a vote of confidence that Democrats in City Hall have failed to enforce law and order as progressive policies backfire. 

According to Luis Quintero, an economics professor at the Johns Hopkins Carey Business School, if office space goes vacant and property values plunge, the city could see a massive reduction in property and income tax revenue. 

Several high-profile tenants have already left downtown Baltimore, including T. Rowe Price and Pandora.

Harrington warned this could be the start of firesales across other towers in the downtown area: 

"I also believe you are going to see other buildings in the same boat."