A steady uptick in early-stage distress is starting to show across commercial real estate, even as the worst of last year's longer-term delinquencies begins to ease.
Delinquency rates for mortgages backed by commercial properties rose to 4.02% in the first quarter of 2026, up from 3.86% in the prior quarter, according to the Mortgage Bankers Association's latest commercial real estate finance loan performance survey. The 165 basis-point increase, quarter-over-quarter, points to a market that is not deteriorating sharply but also not stabilizing as quickly as some lenders had hoped.
"The data show a gradual but persistent increase in delinquency rates in the overall market," Judie Ricks, MBA's associate vice president of commercial real estate research, said in prepared remarks.
The shift is most visible in short-term delinquencies, which increased across every major property type except industrial. Multifamily, office and healthcare posted some of the largest gains, suggesting that stress is broadening beyond the sectors that have dominated headlines over the past two years. The data reflects loan performance as of March 31, 2026, across a sizable portion of the market.
"Participants reported on $2.93 trillion of loans in March 2026, representing 59 percent of the total $5 trillion in commercial and multifamily mortgage debt outstanding (MDO) as of the fourth quarter of 2025," the report said.
At the same time, the composition of that distress is changing. "GSE, FHA, and CMBS loans also saw large jumps in early-stage delinquency," Ricks added.
"This is a slight difference from last year – when long-term delinquency rates trended higher – and suggests that the strong market for refinances and modifications in 2025 was conducive to better positioning troubled loans."
That dynamic points to a pipeline problem rather than a sudden spike in severe distress. Loans that might have tipped into deeper delinquency last year were often restructured or refinanced, effectively resetting the clock. Now, more loans are slipping into the early stages of trouble, particularly as higher interest rates and tighter underwriting continue to pressure cash flows.
By capital source, CMBS remains the most strained. Delinquency rates for CMBS' hit 5.21% when applied to loans 30 days or more past due, up from 4.97% in the previous quarter.
Other capital sources remain comparatively stable, though they are also beginning to edge higher in some cases. Life company portfolios saw delinquency rates dip slightly to 1.47% from 1.50% in Q4 2024, while GSE loans rose to 0.97% from 0.63% in the prior quarter. FHA multifamily and healthcare loans increased to 0.96% from 0.65% at the end of Q4 2025.
Property-level data underscores the uneven nature of the current cycle. The office sector remains the most distressed, with delinquency rates hovering around 8% at the end of the first quarter. The majority of those loans are deeply delinquent, at least 90 days past due, reflecting longer-term structural challenges in the sector. Smaller shares fall into the 30–60 day category or are already in foreclosure or REO status.
Multifamily, while far healthier overall, is showing signs of pressure building. Delinquencies sit just above 2%, with a similar pattern to office, in which the largest share of troubled loans are already more than 90 days delinquent. A smaller portion falls into earlier-stage delinquency or foreclosure.
Across most property types, the bulk of delinquent loans are 90 days or more past due, reinforcing the idea that once loans slip into distress, resolution can be slow. Industrial stands out as an exception, where early-stage and more severe delinquencies are more evenly distributed. Retail shows a slightly different pattern as well, with foreclosure and REO volumes exceeding loans in the 30–60 day category.
Taken together, the data suggest a market still working through the aftereffects of higher rates and refinancing challenges, with distress spreading incrementally rather than spiking. The rise in early-stage delinquencies may be an early signal of further pressure ahead, particularly if refinancing conditions remain tight through the rest of 2026.
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