Report: Commercial/Multifamily Lending Taking a Blow in 2023?

According to the Mortgage Bankers Association (MBA), total commercial and multifamily mortgage borrowing and lending is expected to fall to $442 billion this year, marking a 46% decline from 2022’s total of $816 billion.

Multifamily lending alone (which is included in the total figures) is expected to drop to $285 billion this year–a 41% decline from last year’s total of $480 billion. MBA anticipates borrowing and lending next year will increase to $559 billion in total commercial real estate lending, with $339 billion of that total in multifamily lending.

"The logjam in the commercial real estate markets that began last summer has remained firmly in place,” said Jamie Woodwell, MBA’s Head of Commercial Real Estate Research. “Questions about supply and demand dynamics for some properties, the rise and volatility in interest rates, and the low number of transactions and coinciding lack of price discovery have all contributed to a marked decline in demand for new mortgages. Unfortunately, those and other factors will likely continue to exert downward pressure on borrowing and lending volumes in the coming quarters.”

According to the MBA, office properties are clearly getting the closest scrutiny at present, driven by the changes in office work schedules and questions about how companies will translate work-from-home, hybrid, and return-to-office into demand for space.

According to the Global Commercial Real Estate Services (CBRE), “the overall U.S. office vacancy rate hit a 30-year-high of 18.2% in the second quarter,” with Jones Lang LaSalle (JLL) noting that 12.5 million square feet of negative net absorption in Q2–and effective rental rates decreasing 6.3% overall since Q4 2019 (while increasing 11.6% for trophy properties.) That said, CBRE found that two-thirds of office buildings were more than 90% leased as of Q2 2023–with smaller buildings and smaller markets more likely to be “full.”

As was the case with retail over the last two years, market participants are working through which office properties may face greater and lesser challenges.

“Commercial mortgage originations have historically followed property prices, and the uncertainty about the future path of interest rates has been a contributing factor to the current slowdown,” Woodwell added. “If interest rates and cap rates were to fall, that should help boost values and promote borrowing. If they remain higher for longer, as is increasingly likely, that will suppress activity. This uncertainty is a contributing factor in today’s slowdown.”

In the MBA’s 2023 Q2 Databook, the association noted commercial property sales have plummeted this year, with sales transactions in July 2023 reported at 74% lower than a year earlier, and sales year-to-date were down 59%. The declines aren’t limited to just one or two property types, as sales of retail properties were down 48% year-to-date, industrial properties down 51%, office properties down 64%, and apartments down 67%.