Office CMBS Recovery Slows Amid Market Uncertainty

Office-backed CMBS saw signs of recovery in early 2025, with office properties accounting for over one-third of new issuance in Q1.
Despite improving credit quality, office loans remain the most distressed property type, and refinancing risk looms as loans from the low-rate era mature.
The shift toward recapitalizations and newer buildings marks an evolution in office CMBS as lenders adapt to a changed market environment.

Key Takeaways

Office Loans Dominate Distress Metrics

Even as broader CMBS markets show signs of stabilization, office-backed loans continue to struggle, reports GlobeSt. A March 2025 CRED iQ report highlighted that distress remains highest in the office sector, a trend that has persisted into the second quarter despite a decline in distress across multifamily, lodging, and retail-backed securities.

A Complex Backdrop

Office assets were historically a mainstay in CMBS, accounting for about 25% of issuance between 2012 and 2019. That share grew to 33% during the pandemic, as lenders pivoted away from retail and hotels. However, the maturity of short-term, low-interest loans issued during the 2021-2022 window now threatens asset performance as refinancing becomes more expensive due to rising rates and economic uncertainty.

Signs Of Life, But Caution Persists

In Q1 2025, 36.4% of newly originated CMBS deals were backed by office properties—offering a tentative sign of renewed lender interest. However, that momentum has not held, with remote and hybrid work continuing to impact demand and valuation fundamentals. Still, office-backed conduit CMBS issuance ticked up slightly to 16.3% in Q1, a modest increase from previous periods.

Geography And Quality Take Center Stage

Office CMBS exposure has become more concentrated in Tier 1 markets, with New York and Los Angeles leading issuance in 2025. San Francisco, long a tech and office stronghold, has seen its share fall due to ongoing remote work adoption. Meanwhile, properties built after 2000 now represent nearly 50% of new office CMBS assets—double the historical average—highlighting a growing preference for modern buildings.

Shift In Deal Structure

Acquisitions, once a staple of office CMBS transactions, now represent a much smaller portion of the market. Recapitalizations have surged in their place as property owners seek to refinance amid a high-rate environment and lenders attempt to reposition troubled assets.

Outlook

While structural adjustments and improving credit metrics provide a degree of optimism, uncertainty remains high. Rising interest rates, refinancing risks, and changes in office utilization patterns will continue to shape the outlook for office-backed CMBS through the remainder of 2025.