KBRA releases its 2025 CMBS Sector Outlook, which highlights our 2025 new issuance forecast, trends among the five major property types including demand and supply, and factors that may affect property performance next year. We also discuss year-to-date (YTD) KBRA-rated CMBS conduit trends and metrics, take a closer look at 2024 ratings activity, and provide our rating expectations for 2025.

Looking ahead to 2025, we believe CMBS is set for a record year with issuance and special servicing volume expected to reach peak levels not seen since the global financial crisis (GFC). In our view, the commercial real estate (CRE) securitization issuance momentum that began in 2024 will carry over into the new year as borrowers need to refinance maturities and are accepting of current rates and property valuations—the latter of which is exhibiting signs of stabilization. These factors, along with the potential economic benefits of reduced regulation with the incoming administration, will lay the groundwork for increased private label activity. We forecast 2025 CMBS (conduit and single borrower) issuance to reach levels not seen since the GFC, while CRE collateralized loan obligations (CLO) will stage a strong comeback as bridge lending spigots widen.

However, while we expect strong issuance growth in 2025, there will continue to be credit challenges on outstanding CMBS. CMBS delinquency and special servicing rates continued to climb, reaching 6% and 9.1%, respectively, as of October 2024. With the expected dollar volume growth of the specially serviced loans, we could see the special servicing rate surpass that of the prior peak of 10.5%, which came in the wake of the pandemic—the main difference is that the volume of specially serviced loans decreased fairly rapidly after peaking during the pandemic. This time around, we expect longer resolution periods that will push volumes higher. The office category remains a main driver, which had delinquency and special servicing rates of 9.4% and 13.9%, respectively, and are already at peak levels since the GFC and expected to continue rising.

Key Takeaways

• KBRA estimates full-year (FY) 2024 conduit and SB issuance at over $100 billion, a level experienced only once since the GFC. CRE CLO issuance volume is expected near $10 billion.
• For 2025, we forecast CMBS and CRE CLOs to hit approximately $138 billion, about 20% higher than our FY 2024 estimate. The market will benefit from lower rates owing to this year’s rate cuts, and the potential for further rate reductions, as well as improving property fundamentals and stabilizing valuations. In addition, we also anticipate larger average deal sizes as an increasing number of loans will be originated with continued demand for CRE securitizations.
• A total of $480 billion in loans is scheduled to mature in 2025, of which $85 billion represent CMBS and CRE CLO. Banks hold about one-half of the maturities, of which some could possibly end up in CMBS.
• Pools were less concentrated in 2024, while both KBRA loan-to-value (KLTV) and KBRA debt service coverage (KDSC) had only slight changes when compared to 2023 levels. In 2025, KLTV could increase due to higher leverage reflecting more lender competition.
• By property type, office continues to struggle, although there are signs it could be bottoming out. Industrial continues to benefit from e-commerce growth, while retail has experienced low supply and has profited from consumer spending. Home affordability issues continue to support multifamily demand, while lodging is expected to have modest revenue per available room (RevPAR) growth in the face of continued economic uncertainty.
• Rating activity YTD October 2024 included 569 downgrades and 150 upgrades. A majority of the downgrades were from deals that already experienced negative rating actions prior to 2024. Rating transitions have remained in line with our expectations.

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About KBRA

KBRA is a full-service credit rating agency registered in the U.S., the EU, and the UK, and is designated to provide structured finance ratings in Canada. KBRA’s ratings can be used by investors for regulatory capital purposes in multiple jurisdictions.

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