The U.S. commercial mortgage-backed securities (CMBS) market closed 2025 on a historic high note, underscoring renewed confidence in structured finance and commercial real estate (CRE) credit markets. According to KBRA’s December 2025 CMBS Trend Watch, total U.S. CMBS issuance reached $125.8 billion, marking the highest annual volume since the global financial crisis (GFC) and representing a 18.6% year-over-year increase.
This milestone not only exceeded recent historical averages but also aligned closely with KBRA’s full-year forecast, reinforcing the firm’s outlook on market resilience and investor appetite amid ongoing sector-specific challenges.
Single-Borrower Deals Drive CMBS Market Growth
A major contributor to 2025’s issuance surge was the continued dominance of single-borrower (SB) CMBS transactions. SB deals totaled $91.1 billion, accounting for 72.5% of total CMBS issuance, as investors increasingly favored larger, asset-specific structures over traditional conduit deals.
Conduit issuance remained active but secondary, reflecting a market environment where sponsors and investors alike prioritized transparency, collateral quality, and tailored risk profiles. This shift highlights evolving investor preferences within commercial real estate finance, particularly in an environment shaped by higher interest rates and asset-level performance divergence.
CRE CLO Issuance Far Exceeds Expectations
Beyond CMBS, commercial real estate collateralized loan obligation (CRE CLO) issuance also posted exceptional growth. Total CRE CLO volume reached $30.6 billion, approximately 3.5 times higher than 2024 levels and nearly double KBRA’s initial forecast.
This acceleration signals growing acceptance of CRE CLOs as a flexible financing vehicle, especially for transitional assets and non-stabilized properties. Market momentum appears firmly intact heading into 2026, with January alone potentially seeing up to 22 new deals, spanning SB, conduit, CRE CLO, and Agency transactions.
December 2025 Activity Highlights Market Depth
In December, KBRA published pre-sale reports for eight transactions totaling $5.6 billion. These included four conduit deals, one single-borrower transaction, one CRE CLO, one Agency deal, and one small-balance commercial (SBC) issuance—demonstrating a well-diversified issuance pipeline even at year-end.
Surveillance activity remained robust. KBRA conducted rating reviews on 609 securities across 55 transactions, affirming nearly 89% of ratings. While downgrades accounted for just over 10% of reviewed securities, upgrades were limited, reflecting cautious credit conditions rather than broad-based deterioration.
Elevated Downgrades Persist Across CRE Securitizations
The Spotlight section of the report examined rating transitions throughout 2025 and revealed another year of elevated downgrades across KBRA-rated U.S. CRE securitizations. Downgrades were heavily concentrated in conduit transactions, followed by single-borrower deals, primarily within non-investment-grade and lower investment-grade classes.
A key driver behind these rating actions was the continued rise in CMBS loan distress rates. The overall distress rate climbed to 10.6% at year-end 2025, up from 9.3% in 2024 and 6.7% in 2023, indicating mounting pressure within specific property sectors.
Office Sector Remains the Primary Stress Point
The office sector once again emerged as the most challenged asset class. Office loan distress rose sharply, increasing 160 basis points year-over-year to 16.4%, making it the single largest contributor to overall CMBS distress.
This trend reflects ongoing structural shifts in office utilization, tenant demand uncertainty, and refinancing risk—factors that continue to weigh on credit performance despite strength in other CRE segments.
What 2026 Signals for CMBS Markets
As 2026 begins, the CMBS and CRE securitization landscape appears both active and selective. Strong issuance volumes point to healthy capital market access, while elevated distress and downgrades underscore the importance of asset quality and sector exposure.
For investors, lenders, and market participants, KBRA’s latest CMBS Trend Watch offers critical insights into where risk is concentrated—and where opportunity may still emerge.
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.
