Another Green Shoot for Office – June 9, 2025
CMBS volume for the office sector is rebounding from a 2024 low to pre-pandemic norms
As recently as last year, a post-pandemic revival in the office sector wasn’t exactly high on most industry members’ near-term forecasts. Yet even as the onsite-versus-remote debate continues, we’ve been seeing large leases in major U.S. cities, even if some of them occur at the expense of older properties being vacated in favor of new construction.
There’s another positive sign emerging, and that’s in the realm of commercial real estate finance, specifically CMBS 2.0 loans. A new report from Kroll Bond Rating Agency shows the metrics trending upward.
Among these metrics is sheer volume. Between 2012 and 2019, office properties typically collateralized about one-quarter of all CMBS loans, by balance, across both single-asset single-borrower (SASB) and conduit deals, KBRA reported.
“The pandemic disrupted that trajectory, initially driving office exposure to one-third of all deals in 2020 when retail and lodging fell out of favor, then declining to low single-digit exposure in 2024 as remote working arrangements became more mainstream,” according to the report. In contrast, the first quarter of 2025 saw $10 billion of new CMBS issuance backed by office assets, a year-over-year increase of more than 600% and representing 28.3% of the quarter’s securitizations. It’s worth mentioning that greater CMBS volume doesn’t mean greater acquisition volume, though: 80% of the Q1 2025 office loan volume went to either refinancing or recapitalization.
Driving the recent resurgence in issuance has been SASB office securitizations, KBRA reported. They peaked in total volume during 2021—a year that saw SL Green Realty Corp. refinance its newly constructed One Vanderbilt in Midtown Manhattan with a $3-billion loan—only to plunge over the next two years and bottom out with a single completed deal in 2023. Activity picked up again in 2024 and gained momentum in Q1 2025.
“In contrast, conduit exposure has shown greater consistency, though it has trended lower—to 15.4% in 2024 from a historical average of 26.7% (2012-19)—before experiencing an uptick in Q1 2025,” according to the report. “Recent SASB office deals tend to feature higher asset quality, often backed by well-capitalized sponsors and secured by prime Manhattan office buildings. Conversely, asset quality in conduit office loans is harder to assess at its surface, given their higher loan count, smaller average balances and broader geographic distribution.”
That said, KBRA noted that on an annualized basis, Q1 2025’s conduit loan balance and loan count would be the highest since 2021. Moreover, the office stock in conduit transactions has been getting younger. Citing JLL data, KBRA noted that 68% of U.S. office inventory was built before 2000. While the percentage of pre-2000 construction was nearly 75% in pre-pandemic conduit deals, it now falls below the national average as the share of post-2000 construction has increased to just under 45%.
Q2 2025 has been marked by a macroeconomic headwind that wasn’t as significant in Q1. That’s the trade war resulting from high tariff barriers both in the U.S. and overseas. But having already experienced “a secular downturn” triggered by the pandemic, office may be less sensitive than other sectors to the economic and real estate impact of tariffs, reported KBRA. “While the sector will not be immune to the effects of tariffs, the office market should continue to benefit from gradually improving return-to-office trends, and the sustained demand for high-quality office space.”