The Trepp CMBS Special Servicing Rate rose 33 basis points to 8.79% in September. This was the ninth consecutive monthly increase and the second-largest uptick of 2024, the firm reported.

Distress was consistent throughout, with the respective special servicing rates of the five major property types all increasing. Although these increases varied in degree, four of the five property types increased by at least 30 bps. Driving the overall September increase was office, which surged 67 bps to 12.58%.

The office rate is now up more than 200 bps over the past four months alone, with distress continuing to mount. More than half the September dollar amount of new transfers to special servicing occurred in the sector, according to Trepp.

The multifamily rate rose 36 bps to 6.07%, surpassing the 6% mark for the first time in nearly nine years. Furthermore, the retail rate reached a near two-year high of 11.22%, and the lodging rate hit a two-year high of 7.84%. Even with an 11-bp increase in September, though, industrial CMBS in special servicing still comes in below 1%.

Cap rates in the single-tenant net lease sector increased for the ninth consecutive quarter within all three major property types, according to The Boulder Group’s 2nd Quarter Net Lease Research Report. Single-tenant cap rates increased to 6.47% (up five basis points) for retail, 7.67% (up seven bps) for office and 7.10% (up eight bps) for industrial.

“Elevated interest rates and limited 1031 exchange and institutional buyer activity is the cause of the consistent upward trend in cap rates,” said Randy Blankstein, president, The Boulder Group. “The lack of transactions when compared to recent years is causing property supply to rise without a path to clear the market inventory.”

With a significant number of properties on the market, most investors now believe the current market strongly favors buyers over sellers in terms of compromising on asset pricing. This applies especially to assets that are more highly commoditized, like dollar stores.

“With limited competition, buyers are targeting assets in either income-tax-free states or areas with strong demographic drivers,” said John Feeney, SVP, The Boulder Group. “Secondary buyer motivations include strong real estate fundamentals with credit tenants.”

In the second half of 2024, the pace of cap rate expansion should slow, according to the report. However, cap rates are still expected to rise, given the increase in the supply of net lease properties.