S&P Global: Commercial real estate loan delinquency rate ‘rises sharply’

There’s trouble ahead in the commercial real estate space—especially in the office sector, which has been plagued by the shift to remote work.

In the first quarter of this year, the commercial real estate loan delinquency rate increased by 12 basis points to 0.77%. That’s the highest it’s been since the third quarter of 2021, when it reached 0.83%, according to a new report published by S&P Global Market Intelligence. It’s a bigger deal than it might first appear.

“Investors come under increased scrutiny of loans tied to office buildings, and banks are exercising caution over CRE loans, which could increase stress on borrowers and pressure policymakers to intervene,” wrote S&P Global Market Intelligence researchers in their analysis titled: “CRE loan delinquency rate at US banks rises sharply.’

Heading forward, the commercial real estate loan delinquency rate is expected to rise further.

One reason being the stress in the banking sector: Following the failures of Silicon Valley Bank and Signature Bank, commercial real estate borrowers started to see credit tighten further, in the form of fewer loans and stricter lending standards. That, in turn, is expected to increase delinquencies and defaults.