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Office and Retail Drive Overall CMBS Default Rate Higher
Office and retail CMBS loan defaults drove the overall default rate higher in 2023, Fitch Ratings said Tuesday. The total annual and cumulative U.S. CMBS loan default rates for 2023 increased to 0.9% and 18.5%, respectively, from 0.3% and 17.9% in 2022, due to increased maturity and term defaults primarily in office and retail, which continued to comprise the largest shares of overall default volume. Reduced CMBS issuance was also a factor.
Office default volume increased the most in 2023, to $4.8 billion (55.9% of 2023 default volume) from $1.6 billion (49.4%) in 2022. Most of the office defaults were at maturity in 2023 (60.4%; $2.9 billion), generally in line with 2022 (69.5%, $1.1 billion). Retail default volume in 2023 also increased to $2.55 billion (29.7%) from $1.1 billion (34.3%) in 2022, driven by a high concentration of regional mall defaults.
Although the office and retail sectors experienced substantially more defaults in 2023, the increases in the hotel, industrial and multifamily sectors were more modest, Fitch said. The three sectors combined accounted for less than 10% of overall defaults in 2023, down from 15% in 2022.
Pictured: The Gas Company Tower in Downtown Los Angeles. A Brookfield fund defaulted on $465 million of debt tied to the property in 2023.
