Although overall commercial real estate lending is down 10.6% from a year ago, that’s not necessarily bad news considering that 2017 was the strongest year ever recorded for commercial real estate finance. Due to factors such as increasing interest rates, decreasing net operating incomes (NOIs), decreasing property value growth, and decreasing property sales, there was much uncertainty as to whether the strong real estate market would continue into 2018. But, 2018 has indeed been a strong year for commercial real estate.
There are a few factors that point to a softening CRE market, according to GlobeSt.com:
- Fewer deals are getting done and therefore fewer deals are getting financed
- Although CRE lending is still very strong, banks are reducing their overall exposure to commercial real estate and focusing more on deals that present less risk
- A flattening U.S. Treasury yield curve could indicate a downturn in the market, or even a coming recession, but this remains to be seen
Despite some factors that point to a coming slowdown, according to a recent ABA Banking Journal survey, 79% of banks said they anticipate increasing their capital concentrations for CRE loans in the next year.
So, with all of the contradictory signs coming from the CRE lending arena right now, although CRE lending has experienced a bit of a slowdown, it remains to be seen which way it will go from here.
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Sources:
https://www.morningstar.com/articles/881538/is-the-flattening-yield-curve-a-cause-for-concern.html
