Is there a way to short CRE other than investing in non-commercial RE? I'd think you can probably directly short CRE-focused REITs but I'd be worried about them rebalancing or diversifying even as CRE starts to pop.
Does that help if you believe CRE is on the outs? CRE typically carries a much higher property tax burden, which means that if CRE starts to meaningly go by the wayside: That burden will shift to other property classes, making them much less attractive and/or cuts to services will be made, making the municipality much less attractive overall.
Probably fine if they own their buildings? I can't imagine how they would adapt that quickly, but if it still concerned you you could hedge with brownfield developers or even REITs that don't own (whose costs would presumably plummet)? Not at all an expert.
If you can find intelligence about which CRE will crater to zero and which will just be half of what it's now, you can arrange some in-kind swaps. But the ethics of this feels wrong.
Why would they do that? Would it not make more sense to focus on existing customers instead of chasing new leads? I mean, sure, don't put all your eggs in one basket. But when an existing customer is asking you to take their money, why turn them down?
One company occupying the extra: company goes bust, you lose their business, probably spend months/years fighting with a bankruptcy holding company to get paid and maybe lose.
Two companies occupying the same space: same risk, but you still get paid for the extra space while dealing with it.