Office vacancy rates have climbed sharply in the wake of the pandemic after falling steadily in the decade before, reaching a record 13.1 percent last year, according to data from the Treasury Department’s Financial Stability Oversight Council (FSOC), citing analytics firm CoStar.

At the same time, delinquency rates for commercial mortgage backed securities have also been on the rise in recent months, though they’re still well below highs reached in the immediate aftermath of the pandemic and the fallout from the 2008 financial crisis.

“The decline in office property demand may take time to stabilize as tenants navigate remote-work decisions and adjust how much space they need,” according to the latest FSOC report. “In addition, a slow return to densely populated urban office centers could reduce the desirability of office properties located there and even nearby retail space.”

Federal Reserve Chair Jerome Powell delivered much the same message to the Senate Banking Committee last week, going so far as to declare that there will be failures among smaller and regional banks that have made commercial real estate loans.

“This is a problem we’ll be working on for years more, I’m sure. There will be bank failures,” he said.

“It’s not a first-order issue for any of the very large banks. It’s more smaller and medium-sized banks that have these issues. We’re working with them. We’re getting through it. I think it’s manageable, is the word I would use,” Powell said.

Investors are heeding his warnings about the sector but they’re also taking them with a grain of salt, arguing that traditional liquidity crises of the sort that took down Silicon Valley Bank and Signature Bank last year are unlikely to result from the losses.

“I think Powell’s statement was a little simplistic,” Westwood Capital managing partner Daniel Alpert told The Hill. “There will be disruptions. How those resolve themselves, either with help from the government or outside capital, I believe is going to be very, very different than what we saw with the three banks [last year] and certainly what we saw with any of the other crises.”

The Hill’s Tobias Burns has more here.