What aspect are lenders most sensitive to when evaluating office properties?

Lenders are particularly sensitive to vacancy rates and tenant concentration when evaluating office properties because these factors directly impact the income generated by the property and, consequently, its financial stability. High vacancy rates can indicate a lack of demand for the property, which raises concerns about its ability to generate sufficient rental income to cover debt service and operating expenses.

Furthermore, tenant concentration is crucial since having a few large tenants can pose risk; if one of these tenants vacates or defaults, it could significantly affect cash flow. A diverse tenant mix mitigates this risk by ensuring that the financial health of the property is not overly reliant on any single tenant or group of tenants. Lenders strive for security in their investments, and understanding the tenant landscape helps them gauge the ongoing viability of the property in terms of rental income and overall market appeal.

In contrast, while annual property tax changes, property square footage, and building age and design are also important factors in evaluating a property's worth and potential risks, they do not have as direct and immediate an impact on the income-generating potential and associated risks that lenders are most concerned about as vacancy rates and tenant concentration do.