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Two Years into COVID-19: Impact on Retail and Hospitality CMBS in Europe

The restrictions implemented following the onset of the Coronovirus Desease (COVID-19) pandemic inevitably effected European commercial mortgage-backed securities (CMBS), especially those secured by retail and hospitality properties. DBRS Morningstar conducted an overview of the retail and hospitality loans we rate, identifying key trends within the loans performance. The retail and hospitality loans have held up reasonably well over the last two years, with only three out of 13 loans transferred to special servicing since the beginning of the pandemic, helped by the strong support from sponsors. However, the challenging environment characterised by travel restrictions, attendance limits, and store closures has deteriorated the market value of the underlying properties, with values of retail properties declining between 3% and 40%. The properties of secondary and regional standard are most affected by the economic fallout of the pandemic and value decline is more pronounced in the UK than in continental Europe. Declines in valuation within the hotel sector have been less varied so far.

Despite signs of recovery observed in Q3 2021 in both retail and hotel properties, it is not clear whether this trend will be sustained, as the pandemic continues to cast uncertainty with governments reinstating more stringent health and safety regulations in the face of new COVID-19 variants.