Delinquency on Office CMBS Expected to Rise
S&P releases research paper
April 2, 2003
By MortgageDaily.com staff
In a research paper released Monday, a major ratings agency forecasts rising office delinquencies.
In its research entitled, Increasing U.S. CMBS Office Loan Delinquencies Expected and Office REITs to Face Operating Pressure, Standard & Poor’s (S&P) said it expects U.S. commercial mortgage backed securities (CMBS) office loan delinquencies to rise in the near term. While the office sector currently has the lowest delinquency rate of all major property types tracked by S&P, rents approaching multiyear lows and rental concessions being offered in many markets are expected to cause delinquencies to rise as longer-term leases expire. In addition, the amount of current but specially serviced CMBS office loans at the end of 2002 was the highest of all the property sectors at $889 million, S&P said.
S&P said the current market conditions are the result “of a breathtaking contraction in tenant demand, which began in earnest two years ago.” The report states that vacancy in the office market has risen from 7.9% in 2000 to 16% in 2002, with asking rents falling nearly $3 to $25.69 last year. Markets with a high exposure to technology companies fared worse, including San Jose at 22% and Boston at 18%.
However, S&P noted that “vacancy rates are still lower than at the start of the 1990 to 1991 recession, and interest rates that are at their lowest in decades provide a cushion for owners.”
S&P said it expects more office property owners to default on their mortgages. The ratings agency noted that the health of the office sector is directly tied to the increase/decrease in job growth.
