We all know the story by now. Things are about to get even more difficult for the nation's office market, which already faces higher vacancies and declining property values. Owners that need to refinance could encounter a large funding gap in the near term due to lower loan-to-value ratios and substantial value erosion, according to an analysis by CBRE Econometric Advisors.

Specifically, the analysts calculate that office owners will face a financing gap of $72.7 billion between 2023 and 2025 – 26% of the lending volume originated in 2018-2020. To add to the misery, they conclude the funding gap is significantly worse for office properties than for any other sector.

Borrowers' choices are limited. They may have to inject more cash into their properties or seek additional equity or mezzanine financing to pay off the existing loan. Or they can try to reach an agreement with the lender to agree to a discounted payoff or loan extension. However, the report points out, "Ultimately, some borrowers may be forced to default."  Indeed, there have already been some high-profile defaults this year.