Office pace: Manhattan prime real estate drives US CMBS mart with new asset classes set to join

Issuance volumes in the US commercial mortgage-backed securities market were driven in 2025 by single asset, single borrower (SASB) backed deals. Much of that activity was thanks to rising office occupancy, especially in New York City, and falling interest rates. With those trends set to continue, more SASB issuance is expected in 2026 alongside a rising amount of commercial real estate (CRE) CLOs.

Such deals will meet willing demand as money managers and insurance companies appear keen to lay hands on whatever paper they can find. “The new issue market is performing well and SASB has overtaken the majority of CMBS issuance this year,” says Brian O’Hara, senior CMBS analyst at Janus Henderson.

It follows a tough time for CMBS and the CRE market in the US in recent years as first the Covid pandemic increased working from home, lowering office usage, and then interest rates rose to combat spiraling inflation. But O’Hara hopes the market now believes the opposite trends in rates and office working will bring more deals to the market.

The securitization of loans on trophy assets in Manhattan in particular has sparked the revival in the US CMBS market. Between January 2025 and late October, issuers brought $177.3bn of paper, according to Moody’s, surpassing the full year 2024 total of $165.2bn. This includes around $47bn of agency CMBS and $130bn of non-agency paper.

SASB CMBS issuers had priced paper totaling $76bn in the year to early November, according to Deutsche Bank, compared to $70bn for 2024.

“We anticipate a declining or stable interest rate environment which will spur another record year of CMBS issuance with spreads being stable or tighter,” says Edward L Shugrue III, managing director and portfolio manager for the RiverPark Floating Rate CMBS Fund.

Commercial real estate company CBRE highlights the trends in Manhattan office usage. In November it said that leasing activity, measured in square footage, was 48% of the five-year monthly average and that year-to-date leasing activity was up 38% on the year before.

The amount of space available to be leased was also falling, it said. Of the office space included in its survey, the availability rate had fallen 2.5 percentage points to 16.4% over the last year.

Brendan Jordan, co-head of commercial real estate origination at Atlas SP Partners, believes that the CMBS market by the end of 2025 may well surpass the total priced in 2021— a strong year for the market.

Manhattan is the largest office market in the country and therefore is the most active in terms of CMBS issuance. Many of the deals to be priced this year have been on trophy Manhattan offices. In September, SL Green and PGIM sold a $1.4bn deal backed by its 11 Madison Avenue office building. Brookfield sold $1.25bn of paper backed by the 5 Manhattan West office building in Hudson Yards in the same week. Both deals were oversubscribed.

“We observe that New York city had this bullish return to office theme that is helping a lot of the financing of these high-quality offices, and the spreads are still attractive to most fixed income sectors for similar rating,” says Zachary Aronson, managing director at MacKay Shields.

Office visits, according to data from Placer.ai, are still below pre-Covid levels but are steadily rising in New York City, ahead of the US average. Visits in July were 96% of January 2020’s total for New York, which Placer.ai calls the recovery rate, versus the US average of 79%.

Market experts say that the buoyancy of the underlying real estate market is increasing issuers’ ability to bring securitizations of New York office towers, something that has not been the case since Covid.

The overall absorption rate, a measure of how fast real estate is being leased, hit a record high this quarter for Manhattan, at 4.8m sq ft, with the activity not just limited to prime office space, says O’Hara.

Assuming the macroeconomic environment does not deteriorate, and interest rates continue to fall, Jordan believes 2026’s SASB issuance activity could surpass this year’s.

However, as the Placer.ai data shows, while the office market is recovering, it is not in a golden age. There are still plenty of older properties and securitizations experiencing distress, cautions Aronson. Meanwhile, outside New York, other markets are slower to recover.

While there were deals this year backed by CRE in Seattle and Los Angeles, the recovery rate in the latter also peaked in July compared with all months since January 2020 but only at 65%, according to Placer.ai. Houston is another market where market participants say the office market is yet to recover from the Covid era.

There are nonetheless bright spots in US CRE away from the office sector. Darrell Wheeler, a senior vice president at Moody’s Ratings, says that the CRE market is recovering in pockets. He expects more deals from sponsors in the retail and hotel sectors. However, those will likely be backed by top tier buildings boasting tenancy rates of more than 90% and boasting healthy earnings per sq ft.

This will favor issuance backed by Class ‘A’ shopping malls of the sort O’Hara says he has seen an uptick in during 2025. Class ‘A’ malls are the top tier of outlets that typically generate $700-$1,000 of sales per sq ft, are let to premium brands, have near full tenancy rates and are located in affluent areas with high footfall and consumer spending, according to Rockstep Capital, a Houston-based retail-focused investment fund.

The Taubman Realty and Nuveen sponsored International Plaza, Tampa retail mall-backed trade and Brookfield Properties’ $300m five year CMBS of its North Star Mall in San Antonio, Texas were both oversubscribed when priced in October.

Such oversubscription hints at why spreads in the secondary market for mall-backed issuance are the tightest they have been for the last few years, notes O’Hara, with the triple-A rated tranches quoted at around 110bp over the benchmark.

While SASB issuance appears revitalized, the conduit market for deals that pool a number of underlying assets is lagging. Market sources expect 2025 volumes will end higher than the year before but not by much, with the level of interest rates said to make fixed rate deal execution a challenge.

However, further Federal Reserve interest rate cuts, and clarity on forward guidance, would make 2026 a year of real potential for a recovery in volumes, believes Jordan.

The CMBS market as a whole is also somewhat split, says Aronson, who points out that distress levels in the more subordinated tranches, especially for deals from around 2016, are trading at low cash prices.

One strategist points out that the ‘D’ tranche of Tishman Speyer’s 2024 securitization of the Rockefeller Center was being quoted wide of 500bp, having been priced at 340bp in October 2024.

Spreads widened after US president Donald Trump first announced sweeping tariffs on April 2. Since then, spreads have tightened, in some cases to tights not seen for a decade.

The outlook for spreads does not appear to be resoundingly positive. A research analyst at one Wall Street bank says spreads on triple-A notes have held in over the fall of 2025, but the subordinated tranches of new issues were widening.

This was notable in conduit deals, says O’Hara, and related to a lack of demand as the US economy appears to falter. “We’re seeing a slowing economy and jobs growth has slowed, which is a concern,” he says. “Investors are a little reticent in going down the stack, but spreads are flat to a little wider.”

A smaller market is that for US CRE CLOs. There was $25bn of paper priced between January and October, according to Deutsche Bank. Nonetheless, that is still remarkable growth compared to 2024, when $9bn was issued.

Atlas SP Partners, an active participant in CRE CLOs, finds that there is plenty of paper available in the market, and competitive lending has helped it to grow.

“Where the CRE CLO market sits today, you can get issuers,” says Jordan. “Whether they are mortgage [real estate investment trusts] or debt funds, they are able to get issuances out in the CRE CLO market at nearly 90% advance in the 160bp over type of financing construct that allows them to be very competitive in the lending market.”

The average size of a CRE CLO in 2025 was $1bn, according to Moody’s, the biggest in the last five years. But although deals are growing on average, they are still fewer in number than previously, with 16 priced in 2025 compared to 31 in 2022 when the average size was $956m.

The Wall Street bank analyst notes that there is more demand for CRE CLOs than there is supply. This will help sponsors to assemble deals of big enough size to achieve cost-efficient financing, suggesting the market could grow further in 2026.

Stability of spreads will also help the market to grow as issuers weigh the risk of the time taken to gather enough collateral to place into a CLO to get it to a size they can bring to market.

The triple-A rated tranches of CRE CLOs have held in at around 140bp-145bp over the benchmark. While there have not been any new creative new structures in the market, major names like Benefit Street Partners and Arbor Capital have placed deals this year.

Meanwhile, loan modifications remain high in this market compared to other sectors, according to Deutsche Bank research. The bank notes that 28% of CRE CLO loans have been modified, meaning the terms have been changed to make them more affordable to the borrower. This reflects rising Sofr rates and problems with the underlying properties. Delinquencies of 60 days or longer in CRE CLOs have reached 3.6%, says Deutsche, with 6.1% of loans in special servicing.

Many of the deals with such loans were done between 2021 and 2022, according to a fund manager, when interest rates were lower, with the borrowers having exercised extension options. That is a positive, he says, as it is better than the borrower handing back the keys to the property to the lender.

CRE CLO delinquencies remain lower than in CMBS, argues Wheeler, adding that recent performance trends in the asset class demonstrate the resilience of the deal structures.

Refinancing activity has been driving further issuance, with sponsors now putting more capital into deals to make the debt portion economic, allowing for securitizations to come to market.

O’Hara says he expects more of this activity in 2026. Acquisitions are also driving the increase in SASB issuance, say sources.

That will, of course, depend upon having enough sponsors that are sufficiently capitalized to be able commit more of it to deals that need refinancing.