CMBS Delinquencies Expected to Reach 4.5% This Year
Office will top its historical peak in 2025 while self-storage seems the safest bet.
CMBS delinquencies will head to 4.50% in 2024 and 4.90% in 2025, according to Fitch Ratings. That would be up from 2.25% in November 2023. Pandemic and historic peaks were 5.0% and 9.0%.
“The projection incorporates more maturity defaults from higher interest rates, tighter access to capital, fewer special servicing resolutions, less new issuance and increased loan modification activity,” the firm wrote.
All the major product types will see higher delinquency rates this year, according to Fitch. Office, currently at 3.48% delinquency, is expected to hit 8.1% this year and 9.9% in 2025. Its pandemic peak was 2.8% and historic peak, 8.8%. That’s more than doubling the recent rate. The reason for the estimate is hybrid work that “negatively affects property valuations and performance.”
The next highest delinquency rate will be for retail. At 4.78% currently, retail is expected to climb to 8.6% in 2024 and then head back down somewhat to 7.8%. The numbers for pandemic and historical peaks are 11.6% for each.
If Fitch is correct, hotels will fare much better, delinquencies rising from the current 3.37% to 5.9% this year, 5.7% next. Pandemic and historic peaks were 18.4% and 21.3%. Both hotels and retail are being hit hard because of expected cutbacks in consumer spending.
Multifamily is projected to be at 0.62% now, rising to 1.3% in 2024 and 1.5% in 2025, “given heightened levels of new supply, slowing revenue growth and higher expenses affecting property net cash flow (NCF).” The pandemic and historic peaks were 0.7% and 17.6%.
Industrial and self-storage are projected to do the best on those property types. Industrial is at 0.40% now, to rise to 0.80% in 2024 and 1.1% in 2025. Pandemic and historic peaks were 0.7% and 10.9%. Self-storage is at 0% now, with 2024 to see 0.2% (if projections are correct), dropping back to 0.1% in 2025. Pandemic and historic peaks were 0.3%.
“Given the overall deteriorating outlook across the U.S. CMBS sector, and the expectation of higher loan delinquencies including both term and maturity defaults, downgrades to classes with Negative Rating Outlooks in the next 12–24 months are considered likely with further NCF and valuation declines,” they write.