An analysis of commercial real estate and commercial mortgage-backed securities delinquencies and distress reveals ongoing challenges in some sectors, alongside signs of resilience in others. Broader market indicators suggest a cautiously optimistic outlook.
According to CRED iQ data, CMBS delinquency rates declined slightly in September, falling to 8.59% from 9.44% in August. Similarly, the rate of specially serviced loan distress dropped to 10.63%, down from 10.95%. The overall combined distress rate decreased to 11.28%, a modest drop from 11.78% the previous month.
While these figures are a sharp contrast to the sub-5% levels recorded in 2022 and early 2023, the distress rate has generally hovered between 10% and 12% throughout 2025. January’s combined rate was 11.5%.
Office properties continue to drive a large portion of the distress, followed by multifamily assets. In contrast, retail and hotel sectors showed improvement in September and industrial properties maintained the lowest delinquency rates—buoyed by continued strength in e-commerce.
The analysis also pointed to stabilizing Treasury yields and the Federal Reserve’s recent interest rate cut as signs of cautious market optimism. Easing borrowing costs may open up refinancing opportunities for some of the $957 billion in CRE debt maturing this year. Banks hold the largest share of that debt at $450 billion, followed by CMBS and CRE collateralized loan obligations (CRE CLOs) at $230 billion.
Cap rates rose slightly nationwide to 6.4%, up from 6.3% a year ago. By sector, retail cap rates stood at 7.1%, while office was close behind at 7%. The Commercial Property Price Index (CPPI) rose 0.9% year-over-year, signaling modest price appreciation.
A bright spot in the report is the uptick in capital markets activity. Private-label CMBS issuance reached $91.4 billion, up 26% year-over-year, driven largely by single-asset, single-borrower (SASB) deals totaling $66.9 billion. Meanwhile, agency CMBS loans surged 39% to $105.7 billion, led by Fannie Mae and Freddie Mac. CRE CLO issuance skyrocketed by 234% to $22.7 billion, a trend CRED iQ attributes to growing investor appetite for yield.
In terms of lending sources, agencies made up 20% of the lending share in the first half of 2025, down from 25% in 2024. Debt funds and REITs rose to 14%, while banks continue to hold the lion’s share—49%—of the total $6.2 trillion in CRE debt outstanding.
On the macroeconomic front, indicators such as inflation and employment remain soft but stable.
“For investors, these trends suggest selective opportunities in industrial and multifamily, but continued vigilance around office exposure,” the report noted.
“At CRED iQ, we recommend stress-testing portfolios against upcoming maturities and monitoring special servicing transfers closely. As rates potentially ease further after the October FOMC meeting, refinancing windows may widen—but resolving distress will be key to market stability heading into 2026.”
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