Office CMBS delinquency soars to 8%.

September 29, 2024

Good morning, everyone.

  • Office CMBS delinquency reaches 8%, the highest since 2013.
  • Cold storage is the new hot segment of industrial real estate.
  • CBRE says multifamily has bottomed out.

Market Snapshot

Office CMBS Delinquency Rate Reaches 8%

Photo by CHUTTERSNAP on Unsplash
  • Office CMBS Delinquency Rate Surges: The delinquency rate for office CMBS has exceeded 8% for the first time since November 2013. This surge highlights the ongoing financial stress in the office sector, driven by the prolonged impact of remote work and economic uncertainty.
  • Worsening Market Conditions: The rise in delinquency rates is largely attributed to the weakening fundamentals in the office market. Persistent challenges such as declining occupancy rates and falling property values are making it difficult for property owners to meet their debt obligations.
  • Broader Impact on CMBS Market: The office sector's struggles are contributing to a broader increase in CMBS delinquencies across various property types. As more office loans default, the ripple effect is being felt throughout the commercial real estate financing landscape.
  • Investor Caution Advised: Given the rising delinquency rates and ongoing market volatility, investors are urged to exercise caution when considering office-related CMBS. The current environment poses significant risks, and careful due diligence is essential.
  • Click on the button below to read the full story from GlobeSt.
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Cinemas have lost 30%+ of their visitors from last year, as reported by Colliers.

Is Industrial Dying? Not quite.

The U.S. industrial market showed notable resilience in the second quarter of 2024, driven by steady economic conditions and robust consumer demand. Here’s a closer look at the key trends shaping the market:

Demand and Absorption

Industrial demand picked up significantly this quarter, with net absorption hitting 46.3 million square feet—more than double the previous quarter. Much of this activity was fueled by new deliveries, particularly in markets like Dallas/Ft. Worth, Phoenix, and Houston. However, not all regions shared in the growth; West Coast markets such as Portland, Seattle, and Los Angeles saw negative absorption, reflecting some regional disparities.

Vacancy Rates

National vacancy rates climbed slightly to 6.1%, marking the highest level in nearly nine years but still below long-term averages. The increase was mainly driven by the influx of new supply, especially speculative developments in the South. On the bright side, the pace at which sublease space is hitting the market has slowed, helping to keep overall vacancy in check.

Rental Rates

Asking rents continued to rise, averaging $9.97 per square foot, though the pace of growth has moderated. With a year-over-year increase of 3.7%, rent growth is at its slowest since 2020, suggesting a potential cooling in the market as supply catches up with demand.

Construction and Pipeline

The construction pipeline is beginning to contract, with 343 million square feet under construction at the end of Q2—a 14% drop from the previous quarter. This decline is most evident in speculative projects, which have decreased notably from their peak in late 2022. However, build-to-suit developments are on the rise, particularly in the Midwest, indicating a shift in focus toward more tailored projects.

Leasing Activity

Leasing remained strong, with 137.2 million square feet of new deals inked this quarter, just slightly down from Q1 but still well above the historical average. Key markets continue to see robust activity, signaling sustained demand for quality industrial space.

Outlook

Looking ahead, the market is expected to tighten further in 2025 as the pipeline continues to thin and absorption remains strong. Vacancy rates may peak early next year before starting to decline, while rent growth is likely to slow but remain positive, setting the stage for a more balanced market.

In summary, the U.S. industrial market remains on solid ground, with continued demand, manageable vacancy levels, and a pipeline that’s adjusting to market conditions. While there are signs of moderation, the fundamentals are strong, positioning the market for steady performance in the coming quarters.

For a detailed analysis, refer to the full C&W’s report by clicking on the button below:

Read JLL’s Full Report

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