National CRE News In Your Inbox.
Sign up for Connect emails to stay informed with CRE stories that are 150 words or less.
Improvement in CMBS Delinquencies is Expected to Wane
CMBS delinquencies posted a two-basis-point decline in September, Fitch Ratings and Kroll Bond Rating Agency (KBRA) reported. However, KBRA noted that the slight improvement followed two months of double-digit declines, and Fitch said it’s expecting the pace of improvement to wane with growing macroeconomic concerns affecting refinance activity and resolution velocity.
“These concerns include rising interest rates, high inflation, slowing economic growth, as well as the prospect of the U.S. entering a mild recession in mid-2023,” according to Fitch. Reduced CMBS issuance volumes will also negatively affect the rate.”
Accordingly, Fitch has revised its year-end outlook for delinquencies, forecasting that it doesn’t see the delinquency rate falling below 1.75%, a revision from the 1.25% forecast made at the beginning of the year.
A notable trend cited by KBRA is the continued growth in specially serviced office loans, which are up 11.6% to $2.8 billion since March 2022 among conduit CMBS. In addition, the rating agency said, “office is the sole major property type to experience a rise in special servicing volumes. This contrasts with other property types, which have experienced decreases in specially serviced volume ranging from 13.4% to 52.4% over the same period.
“While office/remote work trends have become clearer this year, overall demand for space is down as companies may be hesitant about making long-term commitments for office space, given economic uncertainty,” said KBRA. “These factors are likely to contribute to increased special service loan transfers in the sector.”
