European CMBS 2024 Outlook

With a significant number of loans maturing in the upcoming months, the European CMBS market is likely to experience further refinancing pressure in 2024. However, the widely anticipated lowering of interest rates, especially in the second half of the year, is expected to contribute to an improvement in the commercial real estate sector (CRE) by reducing financing costs as well as providing a general value recovery.

The downgrades outnumbered upgrades for the first time since 2020, reflecting the challenging macroeconomic scenario for the CRE. Nevertheless, the performance of the European CMBS portfolio monitored by Morningstar DBRS proved generally resilient in 2023, as rating confirmation was still the main rating action.

Morningstar DBRS would still expect a subdued European CMBS primary market, with up to six transactions for a total amount of approximately EUR 3 billion. Without new macroeconomic shocks, it will not be surprising if we update this figure upward during the year.