Courtesy of Gensler / PMC Property Group
- Mortgage originations in commercial real estate fell 47% through 2023, Mortgage Bankers Association said.
- Every sector experienced a pullback, with healthcare and office properties leading the decline.
- The industry is undergoing low confidence as high interest rates raise borrowing costs.
Mortgage originations for commercial properties dropped 47% in 2023, the Mortgage Bankers Association reported.
Healthcare and office sectors led the pullback, with new loan creation volumes decreasing 67% and 65%, respectively. Industrial, multifamily, retail, and hotel properties also saw origination volumes fall.
The drawdown came as weak confidence bears down on commercial real estate. Steep tightening of monetary policy since the pandemic has elevated borrowing costs in the market, compounded by tightening credit standards. Meanwhile, remote work has spurred office vacancies, pulling down demand.
Despite these obstacles, MBA previously anticipated that commercial mortgage lending would climb into 2024, gaining 29% to an expected volume of $476 billion. Though a pick-up from the previous year, that's below levels 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," MBA Head of Commercial Real Estate Research Jamie Woodwell said in January's report.
It wasn't all downhill in 2023, with originations rising 13% between the third and fourth quarters, MBA reported on Monday. Still, dollar volume of loans dropped year-over-year, declining 68% for offices, 39% for healthcare properties, and 27% for the multifamily sector.
However, mortgage originations typically move in line with property prices, Woodwell previously explained, and looser central bank policy this year could provide a boost.
But such optimism isn't widespread. Given current headwinds, the office sector alone faces a 30% peak-to-trough correction, Morgan Stanley recently predicted.
Others expect a peak-to-trough decline of 20% to hit the broader market, with $2.2 trillion in commercial debt set to mature in the next three years. The debt wall has prompted concern over a wave of defaults yet to come.