Retail commercial mortgage-backed securities (CMBS) delinquencies aren’t rising because shoppers can’t afford to spend. They’re rising because of the kinds of properties backing the loans, according to a new analysis by Trepp, a firm specializing in data and analytics for the commercial real estate finance sector. The findings challenge conventional assumptions about the relationship between consumer financial health and retail property performance, suggesting that structural factors within the retail real estate market play a more decisive role than macroeconomic conditions alone.
States with the strongest real wage growth since 2022 have posted higher retail CMBS delinquencies than those with weaker wage growth. The gap isn’t about consumer spending power—it’s about the mix of retail properties in those states. This counterintuitive trend shows how certain property types, rather than broader economic strength, are driving credit stress in the retail CMBS market. The analysis highlights that even in regions where households have seen meaningful income gains, the underlying collateral can still underperform if it consists of property types facing long-term challenges.
Wage growth didn’t shield high-income states
Trepp modeled local real wage growth against retail CMBS delinquencies in the highest- and lowest-growth state groups between 2022 and 2025. The firm split states into two cohorts based on wage growth and compared delinquency rates over that period. The methodology involved isolating the top and bottom quartiles of states by real wage growth, then tracking their respective delinquency trends to identify patterns that might explain the divergence. This approach allowed Trepp to control for variations in local economic conditions and focus specifically on how property composition interacts with wage trends.
If consumer strength were the main factor, high-wage-growth states should have seen lower delinquencies. Instead, they recorded higher delinquencies every year from 2023 through 2025. The current gap stands at 7.8 percentage points. This persistent divergence suggests that the types of retail properties securing loans in these states are more vulnerable to market pressures than those in lower-wage-growth regions. The data implies that even robust consumer demand cannot fully offset the operational and financial strains faced by certain retail formats, particularly those that have struggled to adapt to changing consumer behaviors and competitive pressures.
Trepp Chief Economist Rachel Szymanski noted that real consumer spending returned to normal in 2022 and real wage growth was positive for most of the study period. The issue, she said, isn’t a lack of purchasing power—it’s the types of properties securing the loans. Szymanski’s observation points to a broader shift in the retail setting, where traditional metrics of economic health, such as wage growth and spending levels, no longer serve as reliable predictors of retail property performance. Instead, the focus has shifted toward the resilience of specific retail formats, which vary significantly in their ability to generate stable cash flows and maintain occupancy rates.
Malls and urban street retail are the weak links
More than half of the high-wage-growth states’ retail CMBS exposure is tied to regional malls, and about a quarter is in urban street retail. Both property types have struggled nationally, carrying much of the sector’s stress. Regional malls, in particular, have faced declining foot traffic as consumers increasingly favor online shopping and experiential retail formats. Many malls were designed for a pre-digital era, relying on anchor tenants like department stores, which have themselves undergone significant consolidation and downsizing. The decline of these anchor stores has had a cascading effect, reducing overall mall traffic and making it harder for smaller inline tenants to sustain their businesses.
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Urban street retail, meanwhile, has grappled with its own set of challenges. These properties often occupy high-cost locations in central business districts, where raised rents and operating expenses can squeeze profit margins. The rise of remote work has also reduced daytime foot traffic in urban cores, further pressuring retailers that depend on office workers and tourists. Additionally, urban street retail has faced competition from suburban shopping centers, which offer more convenient parking and a broader mix of essential services, making them more attractive to consumers seeking efficiency and accessibility.
Low-wage-growth states, by contrast, have heavier exposure to community and neighborhood shopping centers, which have held up better. These centers have stayed near the delinquency floor, helping offset weaker wage growth in those markets. Community and neighborhood centers typically feature grocery stores, pharmacies, and other essential service providers, which tend to generate consistent demand regardless of economic conditions. Their smaller footprint and focus on daily necessities make them less susceptible to the e-commerce disruption that has plagued larger retail formats. Furthermore, these centers often benefit from stable tenant mixes, with long-term leases and lower turnover rates compared to malls and urban street retail.
Trepp’s property surveillance currently lists 3,664 retail CMBS properties on the servicer watchlist. The data suggests that even in strong consumer markets, the wrong property mix can drag down performance. The watchlist serves as an early warning system for properties at risk of delinquency or default, and its composition reflects broader trends in the retail real estate sector. The concentration of regional malls and urban street retail on the watchlist aligns with Trepp’s findings, reinforcing the idea that these property types are disproportionately contributing to credit stress in the CMBS market.
This isn’t just about foot traffic. Regional malls and urban retail spaces have faced structural challenges—shifting consumer habits, higher operating costs, and competition from e-commerce. The decline in foot traffic at malls, for example, isn’t solely a function of reduced consumer spending; it also reflects changing preferences, with younger generations prioritizing convenience, digital engagement, and unique in-person experiences over traditional mall shopping. Many malls have attempted to reinvent themselves by incorporating entertainment venues, fitness centers, and dining options, but these efforts have had mixed success, often failing to fully offset the loss of traditional retail tenants.
Neighborhood centers, meanwhile, often anchor daily necessities like groceries and pharmacies, making them more resilient. Their focus on essential goods and services insulates them from some of the volatility that affects discretionary retail categories. Additionally, these centers tend to serve localized customer bases, reducing their exposure to broader economic downturns or shifts in consumer behavior. Their smaller scale also allows for more flexible leasing strategies, enabling landlords to adapt quickly to changing tenant needs and market conditions.
The findings complicate the narrative that retail CMBS risk is purely a function of economic cycles. Instead, they point to a longer-term reckoning for certain property types, regardless of how much money shoppers have in their pockets. The data suggests that the retail real estate market is undergoing a fundamental transformation, with some property types thriving while others face existential challenges. This shift has implications for lenders, investors, and property owners, who must now consider not just the financial health of consumers but also the viability of the retail formats securing their loans. The analysis shows the need for a more subtle approach to underwriting and risk assessment in the retail CMBS market, one that accounts for the structural differences between property types and their respective vulnerabilities to market pressures.
