Commercial Lending Trends 2015

NAR’s 2015 Commercial Lending Trends (PDF link below)

Based on the Expectations & Market Realities in Real Estate 2015: Scaling New Heights report—released by Situs, RERC, Deloitte and the National Association of REALTORS®—commercial real estate (CRE) has been riding a wave of improved macroeconomic conditions and bullish capital markets. During 2014, gross domestic product rose, employment growth accelerated toward the latter part of the year, and stock market indices reached new heights. Consumer confidence improved as the year progressed and oil prices sharply declined, offering strong wind in the sails of economic activity. As the Federal Reserve concluded its quantitative easing program, its target funds rate remained unchanged, as inflation continued below its target range of 2 percent.
Commercial vacancy rates declined for the core property types. Availability is expected to continue contracting for office, industrial and retail properties in 2015 and beyond. Vacancies for apartments are estimated to rise, due to gains in supply. Commercial rents have risen across the board, and are projected to advance this year to the tune of 2.5 percent to 3.7 percent.
CRE sales volume continued its positive trend in 2014, with $438 billion in closed transactions, compared with $361 billion in 2013, based on data from Real Capital Analytics (RCA). Most of the transactions reported by RCA are based on data aggregated at the top end of the market—above $2.5 million.
In contrast to the large commercial transactions reported by RCA, commercial REALTORS® managed transactions averaging $1.6 million per deal, frequently located in secondary and tertiary markets, and focused on small businesses and entrepreneurs. The 2015 Commercial Real Estate Lending Trends shines the spotlight on this significant segment of the economy—a segment which tends to be somewhat obscured by reports on large Class A commercial properties.
Lending conditions in REALTOR® markets notched another year of sustainable recovery. As CRE asset prices strengthened, financing and lending conditions improved in 2014. The main sources of capital for commercial REALTORS®’ clients remained local and regional banks, which made up 58 percent of funding in 2014.
The incidence of failed transactions, due to lack of financing reached a new low. REALTORS® cite uncertainty from legislative and regulatory initiatives as the most relevant cause of bank capital shortage for CRE.
By: George Ratiu (National Association of REALTORS®)
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