Although there continues to be a lot of concern around commercial real estate, our work suggests that this stress is relatively contained.

The chart on the left shows U.S. real estate cap rate spreads, essentially the rate of return on a real estate investment property over the U.S. 10-year Treasury, on average over four quarters. Spreads have been climbing since 2019.

However, the chart on the top right, which shows vacancy rates by property type, shows only a mild uptick thus far in office, retail, and apartment vacancies through 3Q. Industrial vacancies remain low.

The bottom right chart shows that although CMBS delinquency rates have increased on the whole since the onset of the pandemic, the differences among sectors is significant. For example, lodging and retail sectors have seen a sharp rise in delinquencies, as expected given social distancing restrictions and challenged service sectors. On the other hand, areas like multi-family homes, industrial properties and even offices have had minimal impacts thus far. Overall, delinquency rates have come down to 8.28%, just below the 9% delinquency rate for CRE loans at the peak of the financial crisis, and directionally are falling.