Don't Expect Much CRE Lending In The Bay Area In 2023

Commercial lenders are most concerned about market performance in the San Francisco Bay Area among all the major metros in the U.S., according to a new report from CBRE on lender activity.

The Bay Area tops the lender concern list, which features 10 other metros. Lenders ranked it a greater concern than cities like Phoenix, Portland, Oregon, Houston and Los Angeles.  

Markets categorized as expected to “remain attractive to lenders in 2023” are led by those in the Sun Belt, with cities such as Miami and Atlanta leading the list. 

Nationwide, the commercial real estate lending environment is increasingly volatile, with less origination activity expected in 2023.

The industrial and multifamily markets are expected to be preferred asset classes for lenders in 2023, with 41% of respondents choosing industrial and 39% choosing multifamily. Sixteen percent selected retail as a favorable asset class, and the remaining 4% chose hotels. The office asset class had zero favorable responses as a preferred property type for this year. 

The Bay Area’s office segment continues to struggle, making it no surprise that lenders would want to shy away from the asset class this year. A number of high-profile companies such as Salesforce and AT&T are instituting office footprint reductions. Layoffs have also swept the Bay Area's tech sector.

CBRE’s report on the Silicon Valley office market for Q4 2022 showed an increase in the area’s vacancy rate from 11.1% to 14.1% from Q4 2021 to Q4 2022.

Silicon Valley has been one of the Bay Area’s more resilient office submarkets in recent years despite upticks in vacancy. Over half of the market’s 2.3M SF of expected construction deliveries for this year have been pre-leased, according to the report.