With the global commercial real estate sector continuing to struggle, the risk of contagion is rising, as is the prospect of bank failures, says Fitch Ratings.<\/p>\n
In a new report, the rating agency said credit conditions for loans in the commercial real estate sector are expected to continue to deteriorate through 2025.<\/p>\n
These negative trends will impact mortgage-backed securities, along with the banks, life insurers, asset managers and other financial market players with exposure to the sector.<\/p>\n
“Losses should remain within ratings expectations for most issuers, given the wide dispersion of risks within the financial system,” Fitch said.<\/p>\n
At the same time, it warned that a number of U.S. banks \u2014 particularly smaller banks that have larger exposures to the commercial real estate sector \u2014 could fail amid deteriorating credit trends.<\/p>\n
“Weaker issuers with higher concentrations of riskier exposures could face downgrades. Lenders\u2019 retreat from offices will exacerbate refinancing risk, adding to workout activity and credit losses,” it said.<\/p>\n
The value of office real estate in particular has already dropped significantly, Fitch noted.<\/p>\n
“This will continue as leases are marked to market and tenants trim their physical footprints in response to the post-pandemic secular shift in work patterns, and pivot towards well-located, highly amenitized and energy-efficient spaces,” it said.<\/p>\n
In particular, older, lower-quality offices face the greatest risk of declining demand, Fitch noted, adding that they are likely to face “outsized property value declines, and even obsolescence.”<\/p>\n
“This is already evident in some high-profile U.S. office markets and, increasingly, in gateway European cities with rising vacancies,” it said.<\/p>\n
Against this backdrop, Fitch forecasts that the overall delinquency rate for U.S. commercial mortgage-backed securities (CMBS) to more than double to 4.9% in 2025, up from 2.3% this year.<\/p>\n","protected":false},"excerpt":{"rendered":"
U.S. bank failures possible, particularly for smaller banks with higher exposures <\/p>\n","protected":false},"author":147314,"featured_media":482369,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[2313,2312],"tags":[2822,4080,2361,2319,2326,2321,2365,2640],"yst_prominent_words":[6014,48132,29924,18865,15260,15248,14874,12542,11141,11070,9299,7733,6733,6675,6097,1695,5077,2287,1811],"acf":[],"_links":{"self":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/483093"}],"collection":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/users\/147314"}],"replies":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/comments?post=483093"}],"version-history":[{"count":4,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/483093\/revisions"}],"predecessor-version":[{"id":483109,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/posts\/483093\/revisions\/483109"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media\/482369"}],"wp:attachment":[{"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/media?parent=483093"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/categories?post=483093"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/tags?post=483093"},{"taxonomy":"yst_prominent_words","embeddable":true,"href":"https:\/\/www.investmentexecutive.com\/wp-json\/wp\/v2\/yst_prominent_words?post=483093"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}