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CMBS Special Servicing Rate Surges To Highest Level In Over A Decade

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Commercial real estate distress is accelerating, with the latest data from Trepp showing that the special servicing rate for commercial mortgage-backed securities (CMBS) soared to 10.57% in June 2025—the highest level since May 2013. This marks the third consecutive monthly increase and reflects mounting pressure from declining property performance and the growing number of maturing loans.

Over the past year, the special servicing rate has jumped by nearly 225 basis points, climbing from 8.23% to 10.57%. In just the past month, $750 million in loans were newly transferred to special servicing. Meanwhile, the overall balance of outstanding CMBS loans shrank by $8.2 billion, a signal of both falling loan origination and increasing financial strain.

Office Sector Remains Ground Zero for Distress

Office properties continue to bear the brunt of market instability. Trepp reports the office special servicing rate reached 16.38% in June, up sharply from 10.79% a year ago. Despite only a slight increase over the past month, office loans still accounted for $1.7 billion—57% of all new transfers to special servicing.

Mixed-Use, Retail, and Lodging Also Face Growing Challenges

Mixed-use assets had the second-highest distress rate at 12.05%, a slight improvement from May but still significantly higher than the 9.34% recorded in June 2024. Retail properties followed with an 11.93% special servicing rate, up from 10.82% a year prior. Lodging loan distress climbed to 10.11%, a jump from 7.28% last June.

Multifamily properties fared somewhat better. While their special servicing rate reached 8.18%, the sector was one of the few to show month-over-month improvement, dropping by 24 basis points.

Notable Loans Entering Special Servicing

Two high-profile loans illustrate the growing risks in the sector:

  • Ashford Highland Portfolio: This $590.3 million loan backed by 22 hotels across the U.S. was transferred to special servicing due to an impending monetary default. Despite a 2018 valuation of $1.2 billion, occupancy had dropped to 56% by early 2025, with a debt service coverage ratio of 1.41x.
  • 1440 Broadway, NYC: A $415.3 million mixed-use loan secured by a 740,000+ SF property on 41st Street and Broadway is also in special servicing after a maturity default. Formerly anchored by WeWork, the building had just 59% occupancy and a concerning debt service coverage ratio of 0.15x as of mid-2024.

Outlook: Rising Risk Across the Board

The sustained rise in special servicing rates is a clear indicator of systemic stress across commercial real estate sectors, particularly for office, mixed-use, and lodging. With nearly $3 billion in new loans entering special servicing in June alone and loan maturities looming, the second half of 2025 may bring more volatility unless market fundamentals begin to stabilize.

For lenders, investors, and borrowers alike, these trends underscore the need for proactive asset management and renewed focus on risk mitigation strategies.

 

Source:  GlobeSt.

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PwC Says This Is The ‘Hottest Piece’ Of Real Estate In 2025

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Investing in commercial real estate (CRE) can be challenging, with many looking for assets that promise high returns. For 2025, one sector that stands out is data centers, which PwC’s Bill Staffieri, alongside his partner Ricardo Ruiz, referred to as the “hottest piece of real estate right now” during their presentation at the ULI New York: Real Estate Outlook 2025 event at NYU Stern School of Business.

The AI Impact

Staffieri’s bullish stance on data centers is closely linked to the rise of artificial intelligence (AI), which is creating significant demand for these facilities.

“AI spending was just shy of $200 billion in 2024,” Staffieri noted, “and we expect that number to soar to over $800 billion in the next five years.”

Major Investments in Data Centers

Tech giants are rapidly ramping up their investments in data centers to capitalize on this growing demand. One of the biggest moves has been EDGNEX Data Centers, a subsidiary of DAMAC, which recently announced a $20 billion investment in data centers and related platforms. This investment marks DAMAC’s first venture into the U.S. market.

Amazon is also making waves, with its Web Services division planning to invest around $11 billion in AI infrastructure and cloud computing in Georgia, aiming to expand its data center presence and create 550 new jobs.

Meta is following suit, announcing a $10 billion AI-focused data center project in Richland Parish, Louisiana, one of the state’s largest-ever private investments.

With so much activity surrounding the sector, Staffieri added, “If I won the lottery, I’d invest in data centers. I believe this trend will continue for years.”

Don’t Overlook Retail and Self Storage

While data centers are generating a lot of attention, Staffieri also sees potential in the retail sector. While retail has had to adapt in the face of e-commerce growth, there’s still a solid outlook for certain types of retail.

“Most retail subtypes are seeing rent growth and stability,” he observed. However, he pointed out that power centers and outlet centers are facing challenges.

Additionally, Ruiz highlighted another sector to watch: self-storage. Despite facing some recent cap rate compression, self-storage remains strong. “It’s largely institutionalized, with strong demand,” he explained.

On the other hand, Ruiz expressed concerns about the life sciences sector, which he ranked as one of the weakest in terms of investment potential. “Oversupply in many markets is really affecting this space,” he noted.

As we head into 2025, it’s clear that while data centers are drawing the most attention, there are still promising opportunities in retail and self-storage, while caution is advised for life sciences investments.

 

Source:  GlobeSt.

 

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Sale Leaseback Transaction Volume Rises 8.3%

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Dollar volume of sale leaseback deals rose 8.3% to $5.1 billion in the second quarter over the first, while the transaction count remained in line with 165 versus 173 in comparing the same two quarters, according to SLB Capital Advisors.

Two significant transactions helped spur the dollar volume in the second quarter: Realty Income’s acquisition of EG America’s convenience store portfolio for $1.5 billion and Benderson Development Company’s acquisition of Kiewit’s corporate offices for $500 million. But most deals continue at lower numbers or in the $2.5 million to $25 million range.

Specific sectors fared differently and are worth noting. Industrial property transactions decreased from historical levels and represented only 39% of all transactions for the quarter. In contrast, retail, which many observers have worried about, represented an uptick and increased to its highest contribution level since the pandemic. 

Pricing trends. Sale leaseback cap rates have moved up 100 to 200 basis points from two years ago in 2021. The cap rate increase has been more pronounced in non-core markets for smaller credits with lower quality facilities. The impact has been less pronounced in core markets for higher quality facilities with stronger credits. Financing headwinds and inflation have been the two primary drivers, which have resulted in a risk-off environment for most buyers. Because the cost of capital has increased in the last 18 to 24 months, sale leaseback cap rates remain well inside company weighted average cost of capital or WACCs.

M&A arbitrage opportunity. In the second quarter, average purchase price multiples dropped across all deal sizes. While the M&A valuations have declined, this provides increasingly attractive sale leaseback value arbitrage across various industry sectors driven by the delta between business and real estate multiples. Attractive arbitrage opportunities are prevalent for the most part across many middle-market sub-sectors.

North American M&A activity. Deal value fell in the second quarter for a total of those closed or announced at a combined value of $467 billion. But the report said it should not be viewed as a dead market, just below the average pre-pandemic first half levels. The key reasons for less M&A activity are a risk-off financing environment and a mismatch between seller and buyer valuation expectations. Yet, corporate buyers who have strong balance sheets and sizable platforms are likely to benefit in this climate.

Net lease REIT snapshot. Net lease REITs reported $5.4 billion in acquisitions for the second quarter, a rebound from the first when they were $3.1 billion. The reason is attributed to REITs taking a good share of acquisition volume. The net lease REITs reported $2.8 billion of equity offerings in the second quarter, up from $1.6 billion in the first quarter.

By region. The South led in sale-leaseback activity by deal count, comprising 40% of all transactions. The Northeast led in dollar volume with $1.6 billion. In comparing dollar volume, the West closely followed the Northeast with $1.4 billion, then the South came in with $1.3 billion. Last place went to the Midwest with $0.8 billion. When looking at last year’s results, the West experienced the biggest decline in activity, dropping from $7.4 billion to $1.4 billion. The markets that face the most challenges are tertiary rather than core markets. But the good news is that sale leaseback pricing continues to be attractive across all geographic areas for those with strong credit and who are experienced operators, the report said

 

Source:  GlobeSt.

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February’s CRE Sales Volume Up Nearly 34% From January

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Retail led an unbalanced sales volume month in February for commercial real estate’s asset classes, according to a report last week from Colliers.

Overall, February’s volume totaling $25.1 billion was up nearly 34% from January sales levels, an above-average month-to-month increase.

Retail was the most heavily traded asset class in February, with $9.1 billion of activity, buoyed by the take-private deal of STORES Capital REIT. (Without it, the volume would have been $2 billion, and it would have fallen to a similar extent as other asset classes).

Office volume in commercial and business centers (CBD) was short of the $1 billion mark for the second month in a row – and the first time since 2010.

CBD office cap rates are up 70 basis points over the past year, and MSCI notes pricing is down 2.2%, though “recent cap rate movement would suggest a far more rapid price adjustment.”

Industrial volume got back to where it was in 2015-18 by increasing 63% from January. The STORE Capital REIT deal was the main reason why.

MSCI reported a 4.4% annual drop based on January to February pricing.

Multifamily sales volume is moving downward at a faster pace, with February’s $4.8 billion traded was the lowest monthly total since February 2012. A darling for so long, it is now the third-least-traded asset class for the first time since January 2015.

MSCI’s repeat sale index shows an 8.7% annual price decline, the sharpest of any asset class.

Hospitality sales volume was volatile as it was down 53% compared to last year but up month-over-month.

MSCI reports the strongest price appreciation of any asset class over the past year at 5.4%, and unlike other asset classes, when annualizing monthly statistics, hospitality shows a 2.1% gain on $2 billion in trades for the month.

 

Source:  GlobeSt.

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CRE’s New Sector Darling: Retail

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Retail appears to be replacing multifamily when it comes to commercial real estate darlings.

Shopping center vacancy in Q4 reached its lowest level dating back to 2007 – just one among the sparkling highlights according to Cushman & Wakefield research.

Asking rents for shopping centers rose broadly nationwide by 0.8% quarter-over-quarter (QoQ) to an average of $22.99 per square foot, while the vacancy rate declined 20 basis points to 5.7%.

Net absorption accelerated to a pace of 10.9 million square feet (msf), up from the mid-year lull where absorption averaged 9.4 msf over the second and third quarters, but down from 12.9 msf in Q4 2021.

Retail Fundamentals ‘Have Not Yet Flinched’

Barrie Scardina, executive managing director and head of retail services, Cushman & Wakefield, shared in prepared remarks, “The economic backdrop has become highly uncertain over the last several months, with retailers preparing for more challenging conditions in 2023, yet retail fundamentals have not yet flinched.

“Consumer behaviors remained healthy to close out the year: shopping mall foot traffic exceeded 2019 levels in the final two weeks of December, and holiday sales are expected to have been modestly positive. Inflation continues to be a concern for shoppers and retailers, though the rate of price increases moderated in recent months.

“Retailers seem to be confident enough that inflation and a probable recession in 2023 will not be overly disruptive to business; store openings in 2022 outpaced closures by nearly 2,500—the largest net expansion in a decade. In addition to resilience in core retail, consumer services such as medical, entertainment and dining are bolstering retail real estate demand more than they have in past economic cycles.”

Positive net absorption was found in 66 of the 81 markets tracked by Cushman & Wakefield with Chicago (1.0 msf), Phoenix (788,000 sf), Atlanta (574,000 sf), Denver (422,000 sf), Washington, D.C. (397,000 sf), Dallas/Fort Worth (392,000 sf) and New York City (353,000 sf) leading the way.

Philadelphia, Hartford, Buffalo, and Albany each saw a net decline in absorption, as did a handful of secondary markets in the South and West regions.

Retailers Still Adding New Locations

James Cook, Americas director of research, retail, JLL, tells GlobeSt.com that total vacancy had fallen to 4.2% in Q4 2022.

“While such a low vacancy might come as a surprise to some, it shouldn’t,” Cook said. “That’s because many retailers are still adding new locations. After seeing significant retail move-outs in the second half of 2020 there’s been broad demand for retail real estate across a variety of retail categories.

He said that demand has been especially strong from quick-service restaurants and discount retailers in suburban areas. Meanwhile, new construction of retail real estate has been at historic lows.

A steady demand combined with a waning supply has caused falling vacancy,” Cook said. “And all of this has driven up asking rents in nearly every major US market.”

Asking, Effective Rent Spikes Most in Over a Year

Asking and effective rents grew by 19 and 21 basis points, respectively, in Q4, according to Moody’s Analytics, the most growth they have shown in over a year.

Meanwhile, the national retail vacancy rate remained flat at 10.3% — the sixth straight quarter at this level.

“Although these numbers might not jump off the page, this increase breaks a four-quarter streak of asking rent growth that was 0.10% or less and could possibly be the momentum needed to push performance higher in subsequent quarters,” according to the report.

However, data shows foot traffic during the holiday season was down year over year in retail segments like apparel and electronics. Also, US spending on discretionary merchandise fell 5 percent during the week of Dec. 10 from a year earlier, as rising costs forced consumers to be more selective in how they spent their money, Moody’s Analytics reported.

Opportunities that Didn’t Exist in the Past

Matt Hammond, Partner, Coreland Companies, tells GlobeSt.com that demand for second-generation retail in grocery store-anchored shopping centers is as strong as ever.

“Despite the closures, we had to navigate during the pandemic, retailers who were well capitalized adapted and positioned themselves for growth,” Hammond said. “During the past 24 months, we have seen tremendous opportunities for these retailers to lease spaces that weren’t available in the past.

“We’re also dealing with limited inventory today given that ground-up development of traditional shopping centers has declined due to rising land, construction, and capital costs.

Limited inventory drives vacancy rates down and rents up. The increased cost of construction has also been a key factor driving rents. Amortized into a deal is a landlord’s tenant improvement allowance, directly affected by the increases in construction.”

He said that physical, service retail is a necessity and that even many strictly digital brands eventually come to realize that a physical store is part of the shopping experience.

“We expect to see continued positive rent growth and low vacancy into the new year as newcomers remain eager to enter the market and existing retailers take advantage of key opportunities,” Hammond said.

Simon Property Group Redeveloping Former Big-Box Stores

Laura Schwartz, regional vice president of leasing for Simon Property Group, tells GlobeSt.com that across Simon Property Group’s centers, she is seeing an uptick in foot traffic to levels that resemble those of pre-pandemic times.

“To combat vacancy and keep up with this demand, we’ve worked tirelessly to redevelop previously occupied large box stores by building out multiple retail and experiential spaces at affordable rent rates,” Schwartz said.

At Burlington Mall, the end of one wing has been completely revamped to now be occupied by Common Craft, a food and beverage destination drawing locals for craft beverages and local food, as well as the nationally recognized Fogo de Chao.

“Implementing a mix of retail, experiential, and food & beverage tenants means there is more than one draw to our centers than retail alone, opening up our potential tenant pool wider and allowing us to combat vacancy,” Schwartz said.

Experiential Retail Performing Well

Brandon Svec, National Director of U.S. Retail Analytics, CoStar, tells GlobeSt.com that retail vacancy has continued to compress due to both demand and supply side factors.

“A resurgence in experiential retail leasing, coupled with continued expansion from discounters, off-price retailers, and quick-service restaurants has supported strong demand formation,” he said.

“On the supply side, deliveries and starts remain at anemic levels, especially after accounting for the large share of build-to-suit projects.

“Further, demolitions continue at an active pace, helping to remove obsolete stock from the market. Add the fact that retail space impacted by store closures fell to its lowest level in over 15 years and you have the recipe for a very tight market.

“The one outlier has been office-dependent street-level retail within the urban core, which continues to significantly underperform the wider market.”

Discount Retailers Gobbling Up Space

Daniel J. Villalpando, partner, Cox Castle, tells GlobeSt.com that the overall decrease in vacancy rates is likely driven by the “categories” of community and neighborhood centers, power centers, and unanchored strip centers, with the best rates (not surprisingly) typically in Class A projects and projects in the suburbs.

On the contrary, the mall category continues to struggle a bit with vacancies. There has not been much new shopping center development in the last few years, so the amount of inventory has stayed flat, or even decreased. Less inventory can mean lower vacancy rates.

Data indicates retail chain closures decreased in 2021 and announced closure plans for 2022 were low, so retailers are continuing to occupy their premises, for the most part.

Some developers are filling vacancies (particularly of the department store and “big box” varieties) with offices, ranging from call centers to high-tech spaces; distribution and industrial centers; movie stages; and data centers.

Other “experiential” uses such as pickleball courts, golf-themed spaces such as Puttshack, Puttery, and Popstroke, and bowling alleys like Stars and Strikes and Main Event are becoming viable options for retail developers with large spaces to fill. These new tenants bring down vacancy rates.

When there are vacancies, discount retailers and dollar stores such as Dollar General, Family Dollar, Dollar Tree, and Five Below have gobbled up residual space, often in the 5,000- to 10,000-square-foot range.

Grocery-Anchored Development in Demand

Brett Horowitz, partner at Branch Properties in Atlanta, tells GlobeSt.com for his more recent grocery-anchored developments, he continues to see unprecedented tenant demand.

Over the last two years, our developments have been on average, at least 90% pre-leased at the completion of construction. Historically, pre-leasing at this point had hovered around 75% to 80%.”

“We believe a combination of factors including a lack of new retail construction, a larger pool of tenants seeking traditional retail space (i.e. medical tenants), and a larger desire for retailers to be closer to the rooftops in more suburban settings are the reasons for this,” he said.

“These are trends that only accelerated from the pandemic. This historic level of retail occupancy will continue to push rents as well as overall investor appetite in the product type.”

 

Source:  GlobeSt.

 

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Could Higher Gas Prices Have Ripple Effects For Retailers, E-Commerce Leasing In Industrial Market?

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Retailers and wholesalers accounted for the most industrial deals at 200,000 square feet or larger last year, or 35.8% of all leasing activity, a considerable increase from 24.7% in 2020, according to CBRE Group Inc. E-commerce fell from the No. 1 spot in 2020 to third last year, accounting for 10.7% of all deals, while 3PLs grew from 25.8% to 32.2%, ranking No. 2 among large industrial leases in both 2020 and 2021.

Propelled by a surge in online ordering, and changes to consumer preferences in part because of the pandemic, retailers and 3PLs have ramped up their distribution networks considerably in recent years. That demand is expected to be sustained this year, and could become even more frenzied with the recent surge in gas prices.

James Breeze, senior director and global head of industrial and logistics research at CBRE, said transportation accounts for at least 50% of a typical industrial occupier’s costs, even before the recent hike in inflation and oil prices. But, largely because of sanctions imposed on Russia from the war in Ukraine, oil prices have risen dramatically, although Brent crude futures — a key benchmark for oil prices — began to decline this week. National gas prices were down 0.2% between Monday and Tuesday, according to AAA.

Any run-up in transportation costs will likely outpace warehouse rent growth, even while that’s growing at a rapid clip, which could result in even more demand for warehouse space, Breeze said.

Carolyn Salzer, senior research manager of industrial logistics at Cushman & Wakefield PLC, said higher gas prices could have a ripple effect on the industrial market, depending on the user and their supply-chain model. Both Salzer and Breeze said real estate costs for warehouse users have typically been about 5% of a company’s costs but, more recently, that’s gotten closer to 10%, Salzer said.

 

Source:  SFBJ

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2021 CRE Investment Hit A Record $746B

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CBRE released its 2021 US commercial real estate investment volume and announced a record $746 billion, up by 86% from 2020. The fourth quarter of 2021 also saw a record $296 billion, increasing 90% year over year.

For a pre-pandemic comparison, volume in 2019 was $542.4 billion, down 1.8%, and Q4 that year was $152.7 billion, down 8.1% year over year.

There’s been a lot of evidence throughout 2021 that the annual tally would be spectacular, with pandemic rebounds, volumes of cash sloshing over the sides of bank accounts as they looked to be invested, and concerns about inflation and the need for hedging. But it’s good to remember that these factors also drove up prices and that the actual deal volume could be different.

Multifamily was the hot sector in 2021 at $136 billion for the fourth quarter and $315 billion for the year, giving it a 45.9% share of the quarter and 42.2% of the year.

For the whole of 2021 across all types of investment, industrial had a 21.5% share; office, 18.3%; 9.9% for retail; and hotel at 5.7%.

By market, greater Los Angeles was at the top. Investment volume there was $58 billion, with New York coming in second at $49 billion and the $41 billion in Dallas coming in third. The fastest growth was in Las Vegas, where $9.7 billion was a 231.8% year-over-year increase. Houston saw 190.5% growth overall at $25.8 billion, while South Florida’s $27.9 billion was a 178.6% jump.

Multifamily saw the fastest growth in Las Vegas, with a 394.3% year-over-year jump. Next was Houston at 379.0% and South Florida’s 240.3%.

In office investment, the top three regions for growth were Austin (410.4%), Richmond (359.5%), and South Florida (277.7%).

Growth rates in industrial were lower, which may owe to the massive rush to build and spend in 2020 during the pandemic, raising the question for investors of whether growth could continue to lag, or if it might be a case of prices topping out to some degree. Top three regions: St. Louis (144.9%), Sacramento (143.8%), and Austin (142.5%).

Year-over-year retail investment was generally higher than industrial, with Seattle seeing 248.8%, Phoenix at 217.8%, and Houston, 210.6%

Volumes of hotel investment were overall lower, but the growth was remarkably higher in Seattle (1612.0%), Tampa (1284.8%), and Florida’s panhandle (1181.3%).

Big sources for cross-border investment were Canada’s $20.9 billion and $15.2 billion from Singapore. The two countries were far and away the biggest sources.

Final quarter numbers on cap rates show that the “everything is driving lower and lower” discussion might be over reactive. Even warehouse industrial saw cap rates of 5.47, not the “threes” many suggest as averages. Multifamily caps were lower, but still in the high fours. The highest: hotels and an average 8.33.

 

Source:  GlobeSt.

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