Fundamentals in the office sector may be unraveling based on a recent loan delinquency index by Fitch Ratings. The latest version of Fitch’s index shows that “CMBS office was the only major property type to end the first quarter with a higher delinquent dollar balance than at the end of the fourth-quarter,” says Fitch Ratings Senior Director Patty Bach. “Office delinquencies were up 4% from year-end levels,” says Bach.

Another potentially alarming sign: The first quarter U.S. office vacancy rate tracked by Torto Wheaton Research (TWR) ticked up 10 basis points to 12.6%, the first increase since the second quarter 2003.

“While a 10-basis-point movement is not cause for alarm, it may indicate [that] the recovery the office sector was enjoying is slowing, especially in suburban markets,” says Bach.

TWR’s suburban office market vacancy rate increased 10 basis points in the first quarter to 14%, while downtown office market vacancy rate held steady at 10.3%. Higher office vacancies in some markets are attributable to increased construction, and in others a slowing housing market is responsible. “New construction has been more a factor in suburban submarkets, but has also impacted some downtown markets as well,” says Bach.

In March, the overall CMBS delinquency rate dropped one basis point to 0.33%. About half of the delinquency rate decline was attributable to the addition of three new deals totaling $3 billion.