Delinquencies flatten out amid signs of commercial real estate recovery

Commercial real estate loan delinquencies continued to stabilize across US banks in the fourth quarter of 2025 as confidence for the sector's turnaround firmed.

The year-over-year increase in the industrywide delinquency rate narrowed for the sixth consecutive quarter, falling to zero, according to data from S&P Global Market Intelligence. The delinquency rate ticked up 3 basis points to 1.53% sequentially and ranged from 1.50% to 1.59% in 2025.

CRE loan growth also rose 0.8% month over month and 2.8% year over year in the fourth quarter of 2025.

"Sentiment for demand is approaching 2021 levels when CRE acquisition and M&A activity reached local highs amidst incredibly low bond yields," BofA Global Research analysts said in a Feb. 6 report, addressing the results of the Federal Reserve's most recent survey of senior loan officers. "Despite a materially different rate environment from 2021, it appears that most lenders are bullish on CRE and are more willing to put capital to work than in the prior three years as much of the prior uncertainty (when will the Fed stop raising rates, how high will 10-year Treasury yields go, will/won't we have a recession) has been largely resolved."

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Better days

Analysts and banks have described an improving outlook as supply and demand have come into closer balance after overbuilding in some markets and a shock to the office sector from work-from-home patterns, even as they expect additional losses to materialize this year.

The fourth-quarter 2025 volume of CRE changing hands was the highest since 2022, Wells Fargo economists said in a Feb. 6 note, reflecting "the positive effects of lower interest rates on deal activity." The economists said the increase in transactions was broad-based across CRE categories, though it received a substantial boost from data center sales.

Commercial and multifamily originations also rose solidly in the fourth quarter, particularly among banks, Wells Fargo economists said in a Feb. 13 note. "CRE market participants, ourselves included, remain optimistic about prospects for CRE in the years ahead."

Banks including Wells Fargo & Co., PNC Financial Services Group Inc. and M&T Bank Corp. delivered positive comments about the CRE outlook. M&T said it expects its average CRE loans to begin to increase sequentially in the second quarter.

"We've had a headwind of CRE, as you know, for the last couple of years," PNC CFO Robert Reilly said at an investor conference in February, describing loan portfolio growth dynamics. "We see that inflecting sometime late in the first quarter." Reilly added that the pullback from office loans has diminished.

"CRE is going to enter a period here of sort of [business as usual] for lack of a better word, going into the second half of 2026," Reilly said.

"Commercial real estate lending continues to thrive, as evidenced by a bulging new issue [securitization] pipeline, an increase in bank CRE holdings, and a meaningful positive shift" in the results of the loan officer survey, the BofA Global Research analysts said.

Respondents reporting stronger demand for nonfarm, nonresidential CRE loans outnumbered respondents reporting weaker demand by at least 10 percentage points for two consecutive quarters. Respondents reporting easing standards for such loans narrowly outnumbered those tightening for the first time since 2022 during the fourth quarter of 2025.

Concentration

The number of banks exceeding regulatory guidance for CRE concentration fell for the 11th consecutive quarter, although only by one bank to a total of 347 in the fourth quarter of 2025.

Columbia Banking System Inc. remained the largest bank by assets that exceeded the guidance after returning to the group in the third quarter of 2025 through a merger. The bank is continuing to reduce a portfolio of about $8 billion of mostly multifamily "transactional" loans, or loans that it considers less desirable than those where it has a broader relationship with the borrower.

Bank OZK, the second-largest bank in the group, said there are "green shoots" during a late-stage CRE cycle, even with a jump in charge-offs and expectations that additional landlords will become unwilling or unable to support projects this year.

Simmons First National Corp., the fourth largest bank in the group, said that competition for commercial and industrial loans has made risk-adjusted returns for CRE more attractive.