Declining retail performance was chiefly responsible for a 13 basis point (bp) increase in delinquencies in February 2009, bringing the Fitch Ratings U.S. CMBS loan delinquency Index to 1.28%. The rate of increase is consistent with Fitch's expectations that loan defaults will increase to at least 3% by year end 2009.

'As expected, a prolonged decline in consumer spending has forced weaker retailers out of the market, in turn placing significant stress on commercial real estate fundamentals,' said Managing Director and U.S. CMBS group head Susan Merrick. ' As retail landlords struggle with increasing vacancies at existing centers, they must cope with new market realities including a deceleration in new store openings, an overhang of new supply, and continued downward pressure on rents demanded by those tenants still in operation.'

In February, 46 retail loans totaling $277 million became newly delinquent. All but three of the loans had an outstanding balance of $15 million or less, and were collateralized by smaller properties including community shopping centers and strip malls. Additionally, eight of the new defaults corresponded to single-tenant facilities fully leased to now-bankrupt tenants, bringing the total number of vacant stand-alone facilities in the index to approximately 40. With few retailers seeking to expand their current store base, Fitch expects that many vacant big box spaces, both stand-alone and components of larger centers, will remain empty for the foreseeable future.

February marked the sixth time in the past seven months that retail led the newly delinquent loans. The percentage of retail delinquencies relative to the universe of all retail loans was 1.17%, slightly below the index across all property types. Fitch expects that in the near to medium term, retail will represent a growing proportion of overall defaults.

Fitch's delinquency index includes 1,164 delinquent loans totaling $6.2 billion out of the Fitch rated universe of approximately 44,000 loans, totaling $483 billion. Of the delinquencies, multifamily continues to lead by total dollars delinquent ($2.4 billion), followed by retail ($1.7 billion), office ($787 million) and lodging ($665 million). When ranked by delinquencies within their individual property types, again multifamily leads with 3.48% followed by lodging at 1.27%, retail at 1.17% and office with only 0.51%