Office CMBS Delinquency Rate Spikes to a Record 11%, Blowing by the Financial Crisis Peak

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2025-01-01 16:30:04

The delinquency rate of office mortgages that have been securitized into commercial mortgage-backed securities (CMBS) spiked to 11.0% in December, a new all-time high, surpassing even the debt-meltdown during the Financial Crisis, when office CMBS delinquency rates peaked at 10.7%, according to data by Trepp today, which tracks and analyzes CMBS.

Over the past 24 months, the delinquency rate for office CMBS has exploded by 9.4 percentage points, from 1.6% to 11.0%, from everything-is-just-fine to disaster.

The office sector of commercial real estate is in a depression, and office debt just keeps getting worse: an additional $2 billion in CMBS office debt became newly delinquent in December.

Of the major sectors in CRE, office debt is in the worst shape, with its CMBS delinquency rate of 11.0%, compared to lodging (6.1%), permanently troubled retail (7.4%), and multifamily (4.6%). But CRE debt on industrial properties, such as warehouses and fulfillment centers, thanks to the continued boom of ecommerce and the brick-and-mortar infrastructure it requires, remains in pristine condition with a delinquency rate of just 0.3%.

The “flight to quality” split the office market in two. High vacancy rates in the latest and greatest buildings allow companies to move from an older office tower into new fancy digs, while downsizing office space at the same time. As they leave older office towers, new tenants to replace them are hard to find, and the vacancy rates of those older office towers skyrockets, thereby speeding up their demise. It’s those older office towers that are on the problem list, not the latest and greatest towers.

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