Delinquency rates on US office loans rise: Moody's

DELINQUENCY rates for US office loans included in new commercial mortgage-backed securities (CMBS) continued to rise in the second quarter, according to a report by Moody’s Investors Service on Friday (Aug 4).

The delinquency rate on office loans rose 124 basis points in the quarter to 4.47 per cent, as US$1.63 billion in office loans became delinquent from April to June.

“We expect office defaults to continue to build through 2023 as office refinancing standards have been tightened by higher office vacancy levels and growing concerns over the long-term implications of hybrid work for lease demand,” said Moody’s.

In many cities, office buildings have faced high vacancy rates as remote work, which took off during the Covid pandemic, has remained popular.

CMBS issuance also increased slightly in the second quarter to US$3.7 billion from US$3.3 billion in the first quarter. Office loans made up 18.5 per cent in the second quarter. There were five new conduit, or standard, CMBS deals in the second quarter vs four deals in the first, according to Moody’s.

Four of the 10 largest newly delinquent loans in Q2 were secured by office loans.

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The delinquency rate on regional mall loans increased from 20.13 per cent in March to finish the quarter at 21.41 per cent in June, said Moody’s. Four of the top 10 newly delinquent loans in Q2 were similarly secured by regional malls.

Multifamily and hotel delinquency rates increased slightly to 1.37 per cent and 5.79 per cent in June, from 1.22 per cent and 5.63 per cent, respectively, at the end of the first quarter. The retail delinquency rate also increased 13 basis points during the quarter, to 8.03 per cent. REUTERS