Still high, commercial mortgage delinquency rates decline in Q1 2021

Commercial mortgage delinquency rates continued to vary by property type in the first quarter (Q1) of 2021, according to the Mortgage Bankers Association (MBA).

The recession has impacted the commercial market in divergent ways, with industrial experiencing growth and sectors like lodging and retail experiencing significant delinquencies and vacancies.

While delinquency rates for mortgages backed by commercial and multi-family properties continued to decrease on a monthly basis in February across all sectors for the second straight month, delinquency rates continue to remain high for other property types.

Lodging and retail property mortgages continue to show the greatest stress, with 20.6% of lodging mortgages delinquent, and 10.8% of retail mortgages delinquent.

Comparatively, 2.4% of office property mortgages were delinquent, and 2.7% of industrial property mortgages were delinquent.

The total share of seriously delinquent commercial and multi-family mortgages remained relatively level with 3.5% of mortgages 90+ days delinquent.

2020 commercial real estate saw industrial shine, office and retail grow dark

W-shaped recession

Commercial industries continue to experience mixed impacts from the ongoing recession. Although demand for industrial property has increased, the office, retail and lodging sectors continue to experience economic hardships. The irregular trends of the past 12 months stem mostly from changes to consumer behavior, brought on by pandemic-induced social distancing measures.

For example, the increase in demand for industrial property is linked to the sudden swing to online shopping, a trend that had been gradually taking shape over the past two decades, but finally slammed home during the pandemic. This sea change has also stunted retail businesses that rely on in-person shopping. Meanwhile, one-in-five lodging mortgages are delinquent, due to the continued stoppage to travel. With office property, demand has declined in response to the pandemic, in favor of remote work for employees.

While the decrease in delinquency rates for mortgages backed by commercial and multi-family properties in Q1 2021 is an optimistic start to the year, it’s important to remember that the economy is still in a recession.

When the eviction moratorium expires, currently scheduled to occur at the end of June 2021 — though this date has continued to move over the past year and may be pushed back yet again — vacancies are expected to rise.

firsttuesday forecasts a sustained recovery will be within reach around 2024. The actual timing of this recovery will be determined by the potential outcomes from further government intervention, in the form of additional extensions of the eviction and foreclosure moratoriums and government-sponsored job creation.

Our economy is experiencing a W-shaped recession, so the economic recovery will continue to pick up speed and fall back in the months ahead. For a consistent recovery, however, job creation is needed. Real estate professionals will be wise to stand guard against optimism in the market until the jobs market experiences a full recovery.

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