Fitch: US CMBS Retail Sector's Slow Recovery Will Drag On

NEW YORK--(BUSINESS WIRE)-- The retail subsector of U.S. CMBS will continue to stabilize through the end of this year. However, already underperforming assets in secondary and tertiary markets could lose some momentum early in 2016 if retailers face an especially weak holiday season, Fitch Ratings says.

The U.S. Department of Commerce's measure of all retail sales reported that September's sales have risen by 2.4% year over year. Fitch expects retail holiday sales (except in autos) to be up 3.0%-4.0% versus 4.1% last year.

If holiday sales disappoint, that could add pressure on class B and C malls if it pressures retailers to close underperforming locations. Store closing announcements this year have been frequent including The Gap, Family Dollar, Dollar Tree, Dollar General, Macy's, Office Depot/Office Max, American Eagle, and Golf Galaxy. Some retailers may also experience pressure on labor costs due to increases in minimum wages that began in the spring.

In 2Q15, CMBS retail vacancy declined to another new low since the recession however rents grew by a tepid 0.6%. At the same time, construction activity was up but remains at a level lower than last year. This will help support rental rates as it will ensure that the amount of available mall space is prudent.

Retail delinquencies have lagged the rest of the CMBS market. The overall delinquency rate has fallen 31 bps over the past 12 months led by hotel and multifamily improvements. However, retail delinquencies rose by 39 bps over the same period. Additionally, retail assets have been the slowest to refinance at maturity despite currently strong metrics.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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View source version on businesswire.com: http://www.businesswire.com/news/home/20151020006271/en/

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Source: Fitch Ratings

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