The overall delinquency rate for commercial mortgage-backed securities (CMBS) skyrocketed in May by 53 basis points to 3.62%, according to new data from Trepp LLC.
The CMBS delinquency rate is now at its highest level since March 2022, while the 53-basis point upswing was the largest since June 2020. Trepp noted that it does not include delinquent loans that are past their maturity date but are current in interest payments as part of its data, but if they were included the delinquency rate would be 4.99%.
The abrupt rise in the delinquency rate was attributed to office properties – this sector’s standalone delinquency rate was up 125 basis points to 4.02%. This is the first time in five years that the office rate was above 4%.
“Office has been the most heavily watched part of the market as firms look to aggressively reduce space,” said Manus Clancy, senior managing director at Trepp. “Sublease space is at or near record highs in many markets as demand from big tech firms has eroded sharply. In addition, many companies are letting leases expire or are renewing with smaller footprints. At the end of May 2023, Google announced it was offering up 1.4 million square feet in Northern California for sublease.”
Among commercial real estate’s sectors, the retail delinquency rate climbed 56 basis points to 6.67% (the second greatest increase behind office property) while the delinquency rates on multifamily, industrial and lodging properties were all down for the month.