Fitch Ratings says it expects the cumulative default rate on commercial mortgage-backed securities to hit 5% by year-end, based on the 13 years the rating agency has been tracking the securities.Fitch also predicts an average annual CMBS default rate of 1%. Retail-backed CMBS are of particular concern, since the rating agency says it expect a slowdown in the retail sector as higher interest rates cut down on opportunities for consumers to tap into their home equity, which has fueled much consumer spending in recent years. "Declining sales will ultimately cause increased CMBS defaults, particularly among large chain retailers focused on discretionary retail expenditures such as home furnishings and appliances," said Mary O'Rourke, a Fitch senior director. The rating agency says it also expects defaults on multifamily-backed CMBS to go up, primarily due to overbuilding in markets such as Dallas, Las Vegas, and Atlanta. Fitch sees improvement in the hotel sector, and says it expects defaults on hotel-backed loans to decline. However, the sector is seen as "still very vulnerable to geopolitical events."

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