KBRA releases research on the increase in CMBS 2.0 office issuance and recent trends in newly originated conduit office loans. Office properties have typically collateralized about one-quarter of all commercial mortgage-backed securities (CMBS) 2.0 loans, by balance, across both conduits and single-asset single borrower (SASB) deals from 2012 to 2019. The pandemic disrupted that trajectory, initially driving office exposure to one-third of all deals in 2020 when retail and lodging fell out of favor, then declining to single-digit exposure in 2024 as remote working arrangements became more mainstream. The current year, however, began on a positive note for CMBS 2.0 office issuance, with Q1 2025 topping $10 billion, over 6x higher than Q1 2024. At 28.3% exposure, office is now matching more historical norms.

Key Takeaways

• Conduit office exposure has been steadily declining since 2020, when it accounted for 36.4% of CMBS 2.0 issuance volume. However, the trend reversed in Q1 2025, with exposure rising to 16.3% from 13.9% in Q1 2024 and 15.4% for the full-year 2024.
• Recent vintage conduit office assets are increasingly concentrated in primary markets. Assets in Tier 1 markets, which KBRA considers as the most liquid, accounted for 72% of issuance in 2024 and 82% in Q1 2025, up from 65% in pre-pandemic CMBS 2.0.
• The New York and Los Angeles metropolitan statistical areas (MSA) continue to top the list of the largest exposures, while San Francisco has declined in recent vintages, reflecting the outsized negative impact of hybrid and remote working on the office sector in the market.
• Acquisitions fell from one-third of all financings historically to just one-sixth over the last year, while recapitalizations became more common as borrowers sought to bring in new capital.
• Life sciences, research and development (R&D), and medical office properties increased from minimal exposure (6% in 2012-19) to nearly one-quarter (24%) in 2023, before experiencing a pullback in 2024.
• Recent office conduit securitization has included a higher share of newly built properties, with assets constructed after 2000 now accounting for nearly one-half of all office assets, up from one-quarter historically.
• Conduit office leverage metrics over the last five years have improved at a faster rate than for non-office properties.

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About KBRA

KBRA, one of the major credit rating agencies, is registered in the U.S., EU, and the UK. KBRA is recognized as a Qualified Rating Agency in Taiwan, and is also a Designated Rating Organization for structured finance ratings in Canada. As a full-service credit rating agency, investors can use KBRA ratings for regulatory capital purposes in multiple jurisdictions.

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