Fitch Ratings expects that in the near to medium term, retail will represent a growing proportion of overall defaults in the CMBS sector.

The rating agency said, "declining retail performance was chiefly responsible for a 13 basis point increase in delinquencies in February" when Fitch's U.S. CMBS loan delinquency index was 1.28%.

"The rate of increase is consistent with Fitch's expectations that loan defaults will increase to at least 3% by year-end 2009," Fitch said.

Meanwhile, the rating agency also looked at U.S. commercial real estate loan CDO delinquencies, which it said may increase faster than expected this year.

"With CREL CDO delinquencies increasing 1.3% on average over the last two months, the default rate for year-end 2009 could exceed Fitch's initial base expectation for the life of the transactions if this pace continues," said Fitch senior director Karen Trebach.

U.S. CREL CDOs delinquencies increased to 5.4% in February from 3.8% in January, according to Fitch Ratings, New York.

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