The renovated exterior of Franklin Tower, a 24-story former office building and now luxury residential building in downtown Philadelphia. Courtesy: Gensler/PMC Property Group
Commercial real estate mortgage lending is down 47% through 2023, according to the Mortgage Bankers Association.
All sectors saw pullbacks, with health care and office real estate leading the decline.
Rising interest rates have increased borrowing costs and eroded confidence in the industry.
Commercial real estate mortgage lending fell 47% in 2023, according to a report from the Mortgage Bankers Association.
The healthcare and office sectors led the decline, with new loan originations falling 67% and 65%, respectively. Industrial, multifamily, retail and hotel property also saw declines in lending.
The drop comes as dwindling confidence weighs on commercial real estate, as a sharp tightening of monetary policy since the pandemic has pushed up borrowing costs in the market, coupled with tighter credit standards, while remote working has led to more vacant office space and depressed demand.
Despite these obstacles, the MBA previously projected commercial mortgage lending would grow 29% to $476 billion by 2024. While that's up from the previous year, it remains below 2017 levels.
“2023 will likely go down on record as the weakest year in the past decade for commercial real estate borrowing and lending,” Jamie Woodwell, MBA's head of commercial real estate research, said in a January report.
The MBA reported Monday that 2023 isn't necessarily downhill, with loan volume up 13% from the third to fourth quarter. Still, loan volume was down year over year, with a 68% drop in office, a 39% drop in health care facilities and a 27% drop in multifamily.
But mortgage lending typically moves in tandem with property prices, Woodwell has previously explained, and central bank easing this year could provide a boost.
But such optimism is not widespread: Morgan Stanley recently predicted that the office sector alone faces a 30% peak-to-trough correction, given current headwinds.
But some are predicting a 20% peak-to-trough decline across the market, with $2.2 trillion in commercial debt maturing over the next three years. The wall of debt is raising fears of a coming wave of defaults.
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