CBRE: Formerly Sluggish Commercial Real Estate Lending Market Sees Strong Growth in Q3
CBRE originated or brokered enough loans in the third quarter to see double-digit percentage growth from both last quarter and last year, indicating CRE lending activity is improving after months in the doldrums, according to a new report.
The CBRE Lending Momentum Index increased 13% quarter-over-quarter and 15% year-over-year, bringing it closer to reaching average five-year prepandemic levels, the report shows. Investment sales volume also showed signs of stabilization and came in at $90B, though the volume is nowhere near the fourth-quarter 2021 high of $350B, according to the report.
Most loans were issued by life companies and alternative lenders, but the numbers also suggest that the CMBS market is warming back up. The largest share of loans, 43%, came from life companies. That was followed by alternative lenders with 34% and banks with 18%.
Multifamily agency lending saw a significant boost in the third quarter. Agency origination volumes rose 40% quarter-over-quarter to $28B, the CBRE report shows.
The share of CMBS loans grew to 5% in Q3, up from 1% in Q2, CBRE reported.
“Industrywide CMBS issuance, including single-asset single-borrower CMBS loans, totaled $29 billion in Q3, triple the amount of the previous year,” CBRE said in the report.
The increase in CMBS lending comes at a crucial time for the troubled office market, helping boost liquidity and encouraging transaction volume.
“A new market phenomenon, which is very constructive ... is the opening of the CMBS market for the office sector,” BXP CEO Owen Thomas said during an earnings call late last month. “I think that will help buyers create liquidity to buy things.”
Commercial real estate investment volume is still down but stabilizing, according to CBRE. The Q3 investment volume came in at $90B, down 2% from the previous year. That’s an improvement from the prior quarter, which saw volumes down 49% year-over-year.
Yet the third quarter’s investment volume came in 5% below the second quarter, the report shows. Investment sales volume also remains well below the 2015 to 2019 third-quarter average of $136.3B, according to CBRE.
Private investors were net buyers in the third quarter, accounting for $53B of investment volume, CBRE reported. Institutional, REIT and cross-border investors were net sellers.
The Federal Reserve toward the end of the third quarter made its first rate cut since it started hiking rates to tame inflation in 2022.
That drop in federal fund and benchmark rates helped lower the average mortgage interest rate by 20 basis points to 6.1%, CBRE said.
The Fed's second rate cut came last week, bringing a more psychological than mathematical impact to the CRE market, according to some.
The Fed’s meeting is “a visual, psychological kind of morale-boosting mechanism,” Trepp Chief Product Officer Lonnie Hendry told Bisnow. But “it doesn't materially change the math and it doesn't materially change what I think CRE investors will do in the very short term.”
It’s not yet clear what impact Donald Trump’s return to the White House in January will have on federal interest rates and loan and investment activity. But his campaign platform of massive tariffs and corporate tax cuts could shift fiscal policy and profoundly impact inflation and unemployment rates, two indicators the Fed uses to determine interest rate cuts.
