The percentage of shares sold short has spiked, showing investors have increased their bets against office landlords as a regional banking crisis piles onto the factors stacking up against them.

Almost 40% of shares in the iShares U.S. Real Estate ETF are being sold short, the highest proportion since June, according to S3 Partners data reported by Bloomberg.

Hudson Pacific Properties Inc. saw a record amount of shorting last week: 7.4% of shares outstanding, according to IHS Markit. It later dropped to about 5%, which is almost double the level a month ago.

Investors short stocks when they are confident their value will decrease substantially.

The rise in shorting office stocks is correlated to concern about availability of credit to property owners. Office assets serve as collateral for $100B of commercial loans set to expire this year, out of $400B total, data from MSCI shows.

Three regional bank failures in the U.S. have led some economists to predict more office defaults and foreclosures, as many property owners were already struggling with drops in office usage and rising interest rates. At the end of 2022, $40B worth of office properties were flagged as having a higher probability of distress, Bisnow previously reported. The amount of property in distress is higher than any other asset class.

“This regional banking crisis is just throwing fuel on the fire,” Polpo Capital Management founder Daniel McNamara told Bloomberg. “I just don’t see a way out of this without a lot of pain in the office sector.”

Interest rates rising for the past year have contributed to real estate being the most shorted industry across global equities, a March 17 report by S&P Global Inc. shows. Real estate was the third-most-shorted sector in the U.S., Bloomberg reported.

Tightening lending has increased the risk to real estate values and has limited the ability to refinance, which may force office REITs to sell assets, according to the report.

The Federal Reserve signaled Wednesday it could be at the beginning of the end of a series of rate hikes, but conditions will likely get worse before improving.

“[Bank] failures shouldn’t really, in a macro sense, remove a ton of liquidity,” Rebecca Rockey, head of economic analysis and forecasting in the global research department at Cushman & Wakefield, previously told Bisnow. “It’s more the panic, the unknown about other banks and the loss of confidence that is constraining liquidity.”

Rich Hill, chief of real estate strategy research at Cohen & Steers Capital Management Inc., told Bloomberg the company will steer clear of the office market until it reaches its bottom.

“I actually want to see more signs of weakness,” Hill said to Bloomberg. “The more headlines I see that things are really, really bad, the closer I think we are to the end.”