As we approach 2025, the Commercial Mortgage-Backed Securities (CMBS) market is witnessing a resurgence in activity, with recent estimates showing issuance volumes climbing to $26 billion in the second quarter of this year. This uptick signals growing borrower confidence and a stronger appetite for investment within a market that has been marked by uncertainty in recent years.
Despite ongoing delinquencies, the CMBS landscape is ripe with opportunities for investors prepared to navigate its complexities. In October, the Numerix team attended ABS East, a highly regarded structured finance event held annually. Below we provide highlighted content from the event, with a specific focus on trends in the CMBS landscape as they relate to issuance, spreads and delinquency.
Market Shift from 2024 to 2025
Just one year ago, the CMBS market faced an atmosphere of greater uncertainty. Ten-year rates hovered around 5% as the Federal Reserve continued to raise rates, with questions lingering about whether the economy would see a hard or soft landing. Now, as 2024 comes to a close, the outlook is markedly more optimistic. The Federal Reserve has not only paused rate hikes but is expected to make further cuts. Although the number of cuts is uncertain at this point, market participants widely anticipate that lower rates will benefit borrowers, particularly as the economy continues to hold steady. This more positive sentiment has encouraged borrowers who had previously held off on transactions to step back into the market, leading to a ripple effect that could drive even more lending and market activity as 2025 begins.
As borrowers and investors re-enter the market, new opportunities are emerging. Last year’s low transaction volumes and pricing declines have laid a foundation for the market's recovery, with the bottoming of prices setting the stage for growth. Moving forward into 2025, borrowers are likely to become more active in recapitalizations, while mergers and acquisitions (M&A) within the CMBS space may also pick up, bringing fresh participants into the fold. Although many larger banks remain cautious, the CMBS market has proven to be a strong outlet for the types of financing needed to support this next wave of economic growth.
CMBS Issuance, Spreads, and Delinquency Trends in 2025
Issuance Outlook
Market experts predict that issuance volumes in 2025 will likely surpass 2024 levels, which are expected to exceed $100 billion this year for private-label CMBS. This rise in issuance will be driven largely by acquisition financing as rate cuts lower borrowing costs and encourage new sponsors to tap the securitization market. Investors looking for favorable terms and proceeds are increasingly finding CMBS to be an attractive option. Additionally, the quality of assets securing these loans remains solid, partly due to tightened underwriting standards, which have been a hallmark of the recent issuance environment.
Refinancing has also dominated issuance in recent months. This trend not only reflects a demand for better loan terms amid falling rates, but also signals confidence in credit quality. As a result, the CMBS market is expected to see continued issuance strength with a solid foundation in well-underwritten assets.
Delinquency Rates
While issuance is on the rise, delinquency rates are expected to trend higher, reflecting a lagging indicator of past economic turbulence. Maturity defaults have shown signs of tapering, but as loans mature, delinquencies will likely increase from the current 4.8% for the overall CMBS market to higher single digits.
Spreads and Investor Strategy
Investors are also keeping a close eye on CMBS spreads, which are expected to exhibit some volatility yet continue to tighten over the coming months. The market has priced CMBSs relatively inexpensively compared to corporates, making them an attractive investment. With the influx of new capital from money managers and stabilization within broader economic conditions, CMBS transactions are likely to offer a compelling relative value play for investors.
2025: A Pivotal Year for the CMBS Market
As we move into 2025, renewed optimism in the CMBS markets is likely to be tempered with caution. The sector’s increasing recovery will depend on navigating the complexities of refinancing, managing delinquencies, and capturing value in a market with fluctuating spreads.
For investors, the current landscape provides an appealing entry point into a market underpinned by strong assets and evolving opportunities. While challenges remain, 2025 could mark a pivotal year of growth and recalibration for the CMBS market, as participants adapt to favorable borrowing conditions and a gradually stabilizing economy.