J.P. Morgan predicts about 21% of CMBS loans associated with office properties are going to default, equal to nearly $39B, assuming office occupancies don't recover from their pandemic-era slump.

Under that scenario, the loss rate for loan holders would be 8.6%. That rate would mean about $38B in losses for the banking sector and $16B for life insurance companies.

“The cumulative losses would be manageable ... but would impact a sector that is already under pressure from the outflow of deposits,” the company said in its research report.

U.S. regional banks have large loan exposure in CRE, holding about 70% of outstanding commercial property debt, according to Bank of America data reported by Yahoo Finance.

Under more severe scenarios, in which office occupancies permanently shrink by 20 and 30 percentage points, J.P. Morgan estimates default rates would reach 28% and 35%, respectively.

J.P. Morgan estimates that commercial mortgage-backed securities account for 22%, or $549B, of CRE loans, not counting multifamily. Of that, $185B is exposed to office properties.