NewsLink Q&A With KBRA: 2026 U.S. CMBS Outlook

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MBA NewsLink recently interviewed Kroll Bond Rating Agency’s Larry Kay and Aryansh Agrawal about their 2026 commercial mortgage-backed securities outlook.  

MBA NewsLink: What supported 2025’s record CMBS issuance? Can you provide KBRA’s commercial real estate securitization issuance forecast for 2026?

Larry Kay, Senior Director, CMBS Surveillance: Numerous factors supported issuance volume in 2025, including declining borrowing costs, loan refinancings, stabilizing property fundamentals and property prices, capital market liquidity, and healthy investor demand.

In 2026, KBRA forecasts private label CRE securitization volume to reach a post-global financial crisis high of $183 billion, based on current and expected market conditions. This represents an 18% increase from our full-year 2025 estimate, which jumped 38% year-over-year.

These factors should continue to help support issuance in 2026. For example, in 2026, approximately $525 billion will mature followed by another $587 billion in 2027. Banks hold the largest amount of the 2026 maturities at $262 billion (50%), followed by CMBS at $93 billion (18%).

The CRE securitization market could capture some maturity refinancing from banks that have been actively reducing their CRE exposure. Notably, the first wave of five-year conduit loans will reach their open period in 2026. This—coupled with the single-borrower floating-rate loans that are maturing over the next few years—should provide additional support for continued issuance momentum.

MBA NewsLink: By transaction type, could you provide the 2026 forecast amounts and what could be some of the issuance drivers?

Aryansh Agrawal, Associate, CMBS Surveillance: Conduit issuance is forecast at $38 billion in 2026, up 15% from our 2025 estimate, with five-year fixed-rate loans remaining the preferred loan type (69% of 2025 deals). Borrowers have generally been reluctant to lock in long-term rates, as they want the flexibility of shorter terms to be able to refinance at possibly lower rates.

In 2026, conduits are still expected to be dominated by five-year deals, although declining interest rates could increase demand for 10-year loans.

SB transactions have replaced conduits as the CMBS mainstay, driven by strong investor demand and robust appetite from large institutional borrowers seeking CMBS financing for their equity platforms. We are forecasting that SB issuance will surpass $100 billion in 2026 (up 14% YoY), an all-time high. Floating-rate loans continue to dominate, which has been influenced by certain large borrowers’ preference for floating-rate debt.

Some investors seem to prefer SB transactions, as they are collateralized by only one loan and may be simpler to analyze compared to a diversified portfolio of loans of uneven credit quality.

For CRE collateralized loan obligations (CLO), the bulk of the transactions consist mostly of floating-rate multifamily loans whose sponsors generally have stabilization plans in place to increase cash flow and value. We are projecting $40 billion of CRE CLO issuance in 2026, slightly below the sector’s peak issuance of $45 billion in 2021.

After depressed issuance in 2023 and 2024 (due to a sharp increase in financing and renovation costs and reduced debt liquidity), the sector had pent-up demand from borrowers and CLO managers. Recent spread and benchmark tightening—coupled with stabilizing multifamily fundamentals—reignited issuance in 2025, which we expect will continue next year.

MBA NewsLink: With higher loan distress levels in 2025, how did KBRA’s ratings perform in 2025 and what are your expectations for distress levels and ratings in 2026?

Kay: The CMBS (conduit and SB) loan distress rate (30+ days delinquent plus current but specially serviced loans) across KBRA-rated transactions increased to 10.9% in October 2025, up from 9.3% at year-end 2024 and 6.7% at YE 2023. The office sector was the biggest driver of the increase, with a 17.4% loan distress rate in October, up from 14.8% at YE 2024 and 8.6% at YE 2023.

We expect the distress rate to continue to rise into 2026 before flattening out later in the year.

Higher distress influenced the elevated downgrade activity in 2025. KBRA expects that downgrades will continue into 2026, with the pace being reduced by the second half. The negative rating actions will continue to occur mostly on low- and non-investment grade ratings; however, some higher ratings may also be impacted, particularly due to adverse selection and an increase in interest shortfalls in seasoned conduit transactions.

Although downgrade activity remains elevated, the overall KBRA lifetime ratings stability ratio (KSR) was generally consistent with expectations. The sector’s KSR (which reflects the proportion of ratings within a category that have remained the same or have been upgraded since ratings were assigned) for AAAs is 98.7%, 81.1% for the lowest investment-grade rating category (BBB).

MBA NewsLink: Your report mentions that office is facing an uneven recovery, while industrial continues to show strength. Could you expand on this and discuss other major property type fundamentals and outlooks?

Agrawal: The flight to quality continues for office as tenants prioritize newer, amenity-rich Class A assets, which are expected to outperform aging B/C stock. Many lower-tier buildings are struggling to attract tenants even with steep rent discounts, while distressed owners face limited access to capital for necessary upgrades and maintenance. Elevated concessions continue to pressure effective rents and tenant improvement allowances remain above pre-pandemic levels. On a positive note, the office supply pipeline remains suppressed, which should help to reduce future vacancies.

Retail—after multiple years of stress and reset—has experienced a slow and steady recovery. Retailers prefer high-traffic, open-air centers and are willing to wait for prime locations. While bankruptcies have freed up space, much of it is in weaker suburban or mall-adjacent areas. Limited supply of new high-quality retail space and retailers investing in experiential formats has driven higher sales productivity. Looking forward, rents are expected to increase while vacancies remain stable. However, headwinds do exist, including an uncertain trade/tariff policy, which could lead consumers to curb spending and put pressure on retailer margins. In addition, weak employment growth may also dampen consumer sentiment and retail sales.

Industrial fundamentals are moderating with both rents and vacancies exhibiting signs of stabilization after years of strong gains. Net absorption continues to be positive, underscoring continued tenant expansion in key logistics and distribution markets. Properties are expected to continue to benefit in 2026 (albeit at a slower pace) as expiring leases roll to higher market rent levels. Despite new supply pressures, industrial asset values have remained near peak levels nationwide. The price growth through 2025 suggests continued institutional capital support and limited distress within the sector’s core markets.

The U.S. lodging industry’s rebound from the pandemic-induced stress appears largely complete. While average daily rates, occupancies, and revenue per available room have flattened out, strong group demand and limited new supply will help support RevPAR. This is despite softer domestic and international leisure trends. So far, tariffs and trade policy have not had a profound effect on the lodging sector. While the sector remains in good shape, higher labor and operating costs continue to weigh on property cash flow.

Several factors lend support to the multifamily sector. First, persistently high homeownership costs and record-low affordability are expected to sustain multifamily demand. However, a recent glut of supply and weak absorption has contributed to higher vacancy rates and distress rates in some markets. The good news is that construction pipelines are contracting, which should help stabilize fundamentals. Class B/C assets and those in secondary markets are expected to outperform Class A assets and those in Sunbelt metros, where elevated supply and slower absorption continue to weigh on valuations.

MBA NewsLink: What about some of the newer asset types, such as data centers and single-family rentals?

Kay: Data centers have become more prevalent in CMBS as an alternative asset to the major property types. Data center securitizations which use both CMBS and ABS structures saw its collective volume reach $20 billion for YTD October 2025, putting it on pace to double the full-year 2024 total of $12 billion. Investment in data centers has been supported by the rapid expansion in generative artificial intelligence (AI), the continued shift of corporate technology workstreams to off-site locations and expansion of cloud services.

To date, power and land scarcity have kept deliveries of new construction from outpacing demand and creating excess supply; however, a huge wave of supply is coming, with nearly 9.5gigawatt capacity under construction as of midyear 2025. We still expect vacancies to remain in the low single-digit range, as absorption continues to outpace the new supply, supporting additional increases in rental rates.

The single-family rental sector has performed well, and we expect continued stable performance next year. SFR is a hybrid asset class with characteristics of both multifamily and single-family properties. SFR rent and occupancy trends generally follow patterns similar to multifamily, while SFR property values are closely aligned with single-family home price trends. The S&P Cotality Case-Shiller National Home Price Index has experienced four month-over-month declines since May, with a cumulative decrease of 0.6%. However, a general shortage of homes should continue to support residential home prices, and ongoing homeownership affordability challenges should sustain SFR cash flows.


(Views expressed in this article do not necessarily reflect policies of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes submissions from member firms. Inquiries can be sent to Editor Michael Tucker or Editorial Manager Anneliese Mahoney.)