Dean Kaplan is president of The Kaplan Group. He writes about business debt collection & contract negotiations & provides financial advice.
The work-from-home movement has dramatically shifted where and how Americans earn a living. This change continues to transform downtown districts where millions once worked, shopped, dined and entertained.
For the second straight year, Kaplan researchers analyzed office space available in 19 U.S. cities, focusing on leading financial districts. Comparing changes in liquidity, vacancy and growth, our findings reveal that at least half of these financial centers face serious risks for widespread defaults and fire sales of iconic buildings once bustling with activity.
The study index combining days on market (DOM) and vacancy growth with vacancy rates revealed the highest foreclosure risks in Houston, Chicago and San Francisco. Seeing these risks in context can benefit risk-tolerant investors willing to consider fresh opportunities. Lenders, meanwhile, will need a disciplined approach to prevent painful losses if current trends do not improve.
Employers with hundreds of workers based in the riskiest cities may have tough decisions to make. Renegotiate lease terms or draw up an exit plan? A closer look at these troubled financial districts may point to possible answers.
Despite record growth, Houston has a problem.
Buoyed by longtime leadership in energy, space exploration, healthcare and retail sectors, Houston seems, by most measures, a shining economic success. More than 3,500 businesses make their home in the downtown business district, where an estimated 150,000 people currently work.
Houston’s rising risks for commercial foreclosures could be seen as a surprise—or the result of an overheated economy whose GDP soared from 2021 to 2023, reaching a record $697 billion. Overzealous investment in office space has collided with the remote-work movement, leading to record vacancies.
With an average DOM for commercial vacancies of 555 days, Houston has a foreclosure risk score of 0.78, the highest in the U.S.
There’s a perfect storm in the Bay Area.
Decades of tech sector growth collided with restrictive housing policies to make San Francisco one of the costliest places to live in the U.S. (and the world). Housing scarcity made recruitment and retention tough for major employers, but the pandemic added a new twist. San Francisco is now the nation’s work-from-home capital, with 33% of local employees working remotely.
Widespread office vacancies weren’t far behind these trends. By 2025, vacancy rates rose to 23%, giving San Francisco the second-highest foreclosure risk score of 0.59.
Chicago’s dense downtown may soon feel empty again.
Long the center of trade and finance for the Midwest, Chicago boasts a central business district of more than 419,000 employees. Figures from the International Downtown Association show rapid residential growth in the city’s Loop district, suggesting an appealing (and affordable) lifestyle.
Still, these strengths haven’t refilled office towers in the Loop. Average DOM for commercial space stalled at 259 in 2025, with more than 16% of offices vacant at survey time. Chicago’s foreclosure risk index of 0.46 is the third-worst in the U.S.
High-risk cities point to concerns that all municipalities must address.
Experts have long warned that U.S. cities are over-indexed on office space, averaging 70% of total use. This imbalance is one reason major urban centers struggled to spring back after the pandemic. Overinvestment in office towers and parks left few avenues for recovery as the remote-work revolution gained momentum. Downtown districts feel hollow as reduced foot traffic is slashing restaurant, retail and service revenues.
Declining city tax revenues will only compound these issues. With less to invest in municipal services, cities will seem even less vibrant, welcoming and safe to employees and visitors.
This climate brings new considerations for investors, employers and lenders.
Commercial foreclosures in the riskiest downtown districts may lead to a wave of property sales as investors with high risk tolerance take advantage of incredible deals. Some may partner with developers who tap local incentives for office-to-home conversions. Others may invest in new construction or adaptive reuse that creates new retail, hospitality or public spaces. Whatever shape these projects take, the resulting activity will create new jobs and support the goal of rebalancing real estate use in downtown areas.
For employers, the current climate might mean attractive deals too. Those committed to staying in downtown districts may be able to negotiate more favorable lease terms, especially in cities with large inventories of office space. Others may prefer to move to new locations that offer cost savings or upgraded environments (or both). Decisions that follow employees’ personal priorities and preferences will help companies maintain a strong talent base.
Vigilance is the watchword for real estate lenders with significant exposures in high-risk cities, especially the ones mentioned in this article. Continuous monitoring of vacancy rates among portfolio properties can help predict foreclosures, opening the door for alternatives that could prevent costly defaults. Lenders who successfully navigate these risks will be there for businesses that seek financing for future growth.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
Forbes Finance Council is an invitation-only organization for executives in successful accounting, financial planning and wealth management firms. Do I qualify?