Commercial Property Lending (Jan.) - Capital Economics
US Commercial Property

Commercial Property Lending (Jan.)

US Commercial Property Data Response
Written by Kiran Raichura
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Commercial real estate debt growth picked up in January, seeing its strongest rise since April. That likely reflects a sharp increase in investment deals completed at the tail-end of 2020. While this could support continued debt growth in the coming months, we don’t think a rapid acceleration is likely just yet.

Commercial property borrowing beginning to show signs of life

  • Commercial real estate debt growth picked up in January, seeing its strongest rise since April. That likely reflects a sharp increase in investment deals completed at the tail-end of 2020. While this could support continued debt growth in the coming months, we don’t think a rapid acceleration is likely just yet.
  • Outstanding real estate debt held by commercial banks grew by $4.9bn in January to $4.67trn. This marked a turnaround compared to the previous four months, in all of which outstanding debt had fallen.
  • That growth in outstanding debt was driven by increased lending against commercial real estate. In fact, at $7.4bn, commercial property debt (excluding-farmland) saw its strongest monthly growth since August. And that figure reflected increases for both multifamily properties and the other commercial sectors. (See Table 1.) Elsewhere, outstanding debt secured against residential assets fell for the sixth consecutive month.
  • The growth in lending against commercial assets is likely to reflect a stronger-than-expected level of transactions in Q4, with December recording a sharp rise in deal volumes. That suggests that renewed lockdowns didn’t dent investment activity as much as we had expected. What’s more, the Fed’s Q4 2020 Senior Loan Officer Survey showed that, although lenders are still generally tightening standards, a lower balance was doing so in Q4 than in Q2 and Q3. (See Chart 1.) And the demand balances showed improvement too.
  • The strong growth in commercial real estate debt recorded in January surprised us. There could be further upside in the next couple of months if investment activity continues to build in Q1. But we don’t expect a rapid acceleration in outstanding debt given a still uncertain outlook.

Chart 1: Balance of Lenders Tightening Lending Standards (%, Net Balance)

Source: Federal Reserve

Table 1: Federal Reserve Real Estate Loans by Commercial Banks

Seasonally adjusted

2020

2021

($bn unless otherwise stated)

Jan

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Total stock of loans outstanding

4631

4643

4664

4681

4675

4673

4688

4689

4687

4686

4673

4663

4668

– of which comm. property (excl. farms)

1880

1889

1900

1912

1916

1916

1921

1927

1931

1934

1939

1940

1946

  • of which multifamily

401

404

408

410

412

413

415

417

418

419

421

419

421

Multifamily as share of commercial (%)

21.3

21.4

21.5

21.5

21.5

21.6

21.6

21.6

21.7

21.7

21.7

21.6

21.6

Net lending

12.9

12.3

20.6

17.6

-6.7

-2.2

15.7

1.0

-1.9

-1.2

-13.6

-9.7

4.9

– to commercial property (excl. farms)

11.0

9.1

10.1

12.7

3.5

-0.2

5.0

6.2

4.1

3.2

5.3

1.1

7.4

– to multifamily

3.7

3.3

3.4

2.7

2.0

1.1

1.1

2.0

1.6

1.0

1.8

-1.5

1.5

Source: Refinitiv


Kiran Raichura, Senior Property Economist, kiran.raichura@capitaleconomics.com