What’s Ahead for CMBS, CLOs in 2026: Moody’s

The new 2026 CMBS and commercial real estate CLOs outlook from Moody’s Ratings might strike some as more upbeat than expected.

The document suggests that despite delinquencies remaining high, a combination of continued economic growth and falling short-term interest rates—in some global regions—“will support borrowers’ ability to refinance their commercial real estate loans in 2026, leading securitization performance to improve in the U.S. and Europe.”

“We expect leverage to rise next year, exposing large loan and single asset/single borrower (LL/SASB) transactions, conduit/fusion commercial mortgage-backed securities, and commercial real estate collateralized loan obligations to greater loss risk if not accompanied by increases in credit enhancement,” Moody’s wrote.

Further, these improvements in overall performance notwithstanding, and with interest rates higher than when their loans were originated, Moody’s predicts that owners of underperforming properties will face substantial risks of default.

Moody’s groups their outlook into three main headings—property fundamentals, new transactions and existing transactions—so we’ll look at each of the three in turn, just in the U.S.

Property fundamentals  

For property fundamentals, Moody’s sees economic growth, even if muted, as being adequate to ease financing costs and bolster valuations by supporting demand for commercial real estate space. Declining interest rates will give borrowers some relief in terms of their financing costs.

More specifically, Moody’s forecasts U.S. 2026 economic growth at a modest 1.8 percent, in tandem with lower short-term and stable long-term interest rates. Nonetheless, the outlook states, “hundreds of thousands of job losses in coming months will undercut demand for space in most sectors.”

With that as part of the equation, Moody’s expects overall commercial real estate conditions in this country to improve slightly through the third quarter of 2026, yet remain neutral.

New transactions

Moody’s foresees leverage increasing as interest rates decline. Offices and data centers have been a growing component of SASB deals, “with financing demand for data centers likely to rise further in 2026.”

The company expects that CRE CLO issuance will be supported by loans that had previously delayed refinancing because of inadequate debt coverage, as lower interest rates in 2026 enable the loans to be refinanced with private CRE CLO lenders.

Most SASB issuance in 2026 is expected to remain floating rate, as interest rates continue to drop and borrowers look forward to additional rate reductions.

The office sector was a big driver of SASB issuance growth in 2025, at $25.7 billion in new issuance, more than any other product type. The resurgent Manhattan market accounted for $17.2 billion of that.

In addition, Moody’s wrote, “data centers became a core SASB property type, with 2025 issuance of $10.7 billion, up from just $3.0 billion in 2024. We expect 2026 data center SASB issuance to grow further, but institutional investors’ limitations on property type and tenant concentrations may govern the expansion.”

Existing transactions

In the U.S., according to Moody’s, “conduit refinancing rates will rise in 2026 but remain below historical averages as office repayments only slightly improve,” given the office sector’s weakness.

Further, a slowdown in U.S. consumer spending would constrain revenue in the retail sector. The outlook noted that over the past two years’ issuance, weak regional mall loans have re-emerged, such that “any pullback in consumer spending could cause property cash flows to decline and marginal loans to eventually default.”

Weak office performance in certain regions might be a factor if conduit delinquencies marginally increase in 2026. Moody’s points out that the office sector’s delinquency rate increased by 150 basis points over the past year, to almost 18 percent.

“Many large office markets have too much vacant office space, causing buildings with high shares of near-term lease expiries or high vacancies or both to be unable to refinance,” the outlook stated.

Among the largest U.S. office markets, Moody’s sees Chicago, Los Angeles and Washington, D.C., as cities where demand won’t be adequate to cut into high vacancies. On the other hand, Dallas and Houston are experiencing enough office-using job growth to limit increases in overall vacancy.