Also in relatively good shape are CMBS loans originated in 2009 and later. Sixty-one Fitch-rated CMBS 2.0 loans totaling $612 million defaulted in '16, although on a percentage basis that's a significant increase from '15, when 16 loans totaling $149.8 million defaulted.

Fitch expects to see a modest increase in defaults from CMBS 2.0 loans in the coming years as the current credit cycle matures. However, the ratings agency projects default levels for CMBS 2.0 to remain relatively low barring a major macro shock.

Office once again led loan defaults among all CMBS property types last year with 141 loan defaults totaling $3.75 billion, or 46% of the tally. “While office performance has shown some improvement over the past several years, significant differentiation between markets exists,” according to Fitch.

The performance in gateway cities remains stable, while suburban markets—notably in the Chicago, Washington, DC and Pittsburgh markets—are struggling, Fitch says. Markets with strong demand from technology companies, including Silicon Valley, Austin and Seattle, are seeing record valuations. Conversely, Fitch says, “Houston continues to see fallout from depressed energy prices combined with some large new completions, and even New York is feeling the effects of significant new supply.”

Retail CMBS defaults were the second largest contributor in '16, with 263 loan defaults totaling $2.62 billion. Fitch notes that shifts in consumer habits are reducing traffic at many shopping centers and hurting many traditional mall retailers. “Continued store closings by Macy's, Sears and JC Penney will disproportionally affect lower-tier malls and drive retail CMBS loan defaults higher,” Sutherland says.

CHICAGO—CMBS loan defaults are poised to rise sharply this year, Fitch Ratings said Monday. The catalyst is a rise in maturity defaults, Fitch says, although term defaults are expected to increase marginally year over year.

“Over 75% of term defaults last year were from 2006 and 2007 vintages,” says Chicago-based senior director Brook Sutherland. “Many CMBS borrowers stopped paying several months ahead of upcoming maturity dates in anticipation of not being able to repay the loan.”

Last year's total annual default rate was 1.1% and the cumulative default rate was 16.6%. Maturity defaults in 2016 accounted for 71.6% of all defaults and consisted of 397 loans totaling $5.84 billion. That compares to 2015, when 294 loans totaling $3 billion defaulted at maturity, representing 52.5% of all defaults.

Meanwhile, CMBS term defaults in '16 declined for the sixth consecutive year to 0.31%, the lowest level since '07. Even with an expected slight uptick this year, Fitch expects term default rates to remain stable and relatively low.

Also in relatively good shape are CMBS loans originated in 2009 and later. Sixty-one Fitch-rated CMBS 2.0 loans totaling $612 million defaulted in '16, although on a percentage basis that's a significant increase from '15, when 16 loans totaling $149.8 million defaulted.

Fitch expects to see a modest increase in defaults from CMBS 2.0 loans in the coming years as the current credit cycle matures. However, the ratings agency projects default levels for CMBS 2.0 to remain relatively low barring a major macro shock.

Office once again led loan defaults among all CMBS property types last year with 141 loan defaults totaling $3.75 billion, or 46% of the tally. “While office performance has shown some improvement over the past several years, significant differentiation between markets exists,” according to Fitch.

The performance in gateway cities remains stable, while suburban markets—notably in the Chicago, Washington, DC and Pittsburgh markets—are struggling, Fitch says. Markets with strong demand from technology companies, including Silicon Valley, Austin and Seattle, are seeing record valuations. Conversely, Fitch says, “Houston continues to see fallout from depressed energy prices combined with some large new completions, and even New York is feeling the effects of significant new supply.”

Retail CMBS defaults were the second largest contributor in '16, with 263 loan defaults totaling $2.62 billion. Fitch notes that shifts in consumer habits are reducing traffic at many shopping centers and hurting many traditional mall retailers. “Continued store closings by Macy's, Sears and JC Penney will disproportionally affect lower-tier malls and drive retail CMBS loan defaults higher,” Sutherland says.