In January 2024, the Trepp CMBS Delinquency rate saw a modest increase, rising by 15 basis points to 4.66%. The office sector experienced a significant uptick in delinquencies, with a 48 basis points increase to 6.30%, while the multifamily segment recorded a substantial decline of 71 basis points. The overall US CMBS delinquency rate is now at 4.66%, marking a 172 basis points increase year-over-year, with seriously delinquent loans at 4.42%.
Landlords are ending pandemic-induced concessions as retail real estate competition heats up, marking a shift from the earlier trend of reduced rents and flexible arrangements to support struggling tenants. The surge in retail demand, resilient consumer spending, and limited new construction have strengthened landlords’ positions, leading to higher occupancy rates and increased rents. While percentage-of-sales agreements were prevalent during the pandemic, landlords are now favoring fixed-base rent structures, reflecting the retail sector’s current robustness.
Despite a 19.6% year-over-year increase in new demand for office space in the second half of 2023, office leasing activity remains at about 55% of pre-pandemic levels, according to VTS Inc.’s Office Demand Index (VODI). The growth in touring activity is attributed to increased economic certainty and a slight reversal in remote-work trends. While the leasing activity in 2024 is expected to be solid, especially in New York, tenants are seeking flexibility and top-quality space as the outlook for real estate needs remains uncertain.
The extended stay hotel sector is experiencing rapid growth in the United States, with a projected compound annual growth rate of 11.8% from 2023 to 2033, reaching an estimated value of $166.58 billion by 2033. This surge is attributed to the cost-effectiveness of building and maintaining extended stay hotels, with smaller amenity spaces and fewer operational demands. The segment outperformed the broader hotel industry during the pandemic, and major hotel companies, including Wyndham, Choice, Hilton, Marriott, and Hyatt, are launching or expanding extended stay brands to capitalize on the demand driven by remote work and infrastructure projects.
Federal Reserve Chair Jerome Powell predicts that more small banks may close or merge due to weaknesses in commercial real estate, but he deems the problem “manageable” and believes there’s little risk of a repeat of the 2008 financial crisis. Powell’s comments follow concerns triggered by New York Community Bancorp’s unexpected quarterly loss and dividend cut, leading to a drop in the stocks of regional banks. While acknowledging challenges for smaller banks with concentrated exposures in commercial real estate, Powell reassures that the larger banks’ balance sheets indicate a manageable situation.
Commercial real estate faces challenges in 2024, but investor Sonny Kalsi predicts a rebound in 2025, citing opportunities in dislocations. As the co-CEO of BGO, overseeing $80 billion in private funds invested globally, Kalsi sees potential gains in the troubled office sector, particularly in the middle 50% of office assets. While multifamily dwellings experience rent declines, BGO is optimistic about industrial property and data centers, with Kalsi expecting lending conditions to ease when the Federal Reserve trims interest rates later in 2024, paving the way for a resurgence in 2025.