The commercial real estate (CRE) market in the U.S. is under intensifying pressure as debt challenges mount, lenders pull back, and office demand remains weak.

The latest:

Distressed CRE debt surged to $116 billion in March — a 23% increase from the previous year and the highest level recorded since the financial crisis, according to MSCI. While Green Street notes that delinquencies continue to climb, the pace has eased somewhat. The FDIC also flagged rising concerns, reporting that past-due and nonperforming loans have reached their highest point since 2014, with multifamily debt increasingly on regulators’ radars.

What’s at risk:

A looming wave of debt maturities has industry participants bracing for a spike in office loan defaults. The Federal Reserve’s May Beige Book cited weak leasing activity in both office and industrial sectors, weighed down by policy uncertainty and global trade tensions. Adding to the risk, a proposed Section 899 tax could further deter foreign investment in U.S. real estate.

Notable exits:

Germany’s Deutsche Pfandbriefbank announced plans to exit the U.S. CRE market, looking to divest a $4.7 billion loan book. Meanwhile, U.S. banks have been extending loan terms to sidestep recognizing losses linked to over $410 billion in unrealized losses on securities holdings, according to the FDIC — a temporary fix rather than a lasting solution.

The funding gap:

As traditional lenders pull back, private credit funds and alternative lenders have stepped in to fill the void. However, the Financial Stability Board has cautioned that this shift could amplify financial vulnerabilities in the event of a downturn, raising questions about the resilience of these non-bank lenders in a stressed market cycle.

➝ The Bottom Line:

CRE credit stress is no longer confined to the office sector or regional banks — it’s expanding across asset classes and investor profiles. With a heavy slate of debt coming due and lenders forced to choose between extending terms or taking losses, the market faces mounting risks that could quickly escalate if broader economic conditions deteriorate.