Mortgage originations in commercial real estate fell 47% through 2023, Mortgage Bankers Association has said
Mortgage originations in commercial real estate fell 47% through 2023, Mortgage Bankers Association has said
Commercial property mortgage originations plummeted by 47% in 2023, according to the Mortgage Bankers Association.
The healthcare and office sectors experienced the most significant decline, with new loan creation volumes dropping by 67% and 65%, respectively. Industrial, multifamily, retail, and hotel properties also saw decreases in origination volumes.
This decline comes amid low confidence in the commercial real estate market. The sharp tightening of monetary policy since the pandemic has led to higher borrowing costs, compounded by stricter credit standards. Additionally, the shift to remote work has increased office vacancies, reducing demand.
Despite these challenges, the MBA had previously anticipated a 29% increase in commercial mortgage lending in 2024, reaching an expected volume of $476 billion. While this would be an improvement from the previous year, it remains below levels seen as far back as 2017.
"2023 is likely to go into the record books as the slowest year for commercial real estate borrowing and lending in roughly a decade," said Jamie Woodwell, Head of Commercial Real Estate Research at the MBA, in the January report.
However, there was a slight improvement in the fourth quarter of 2023, with originations rising by 13% compared to the third quarter. Despite this increase, the dollar volume of loans dropped year-over-year, declining by 68% for offices, 39% for healthcare properties, and 27% for the multifamily sector.
Woodwell has previously explained that mortgage originations typically follow property prices, and looser central bank policy in the coming year could provide a boost.
Nevertheless, optimism is not widespread. The office sector alone is expected to face a 30% peak-to-trough correction, according to Morgan Stanley. Others anticipate a broader market decline of 20%, with $2.2 trillion in commercial debt maturing in the next three years, raising concerns about a potential wave of defaults.