Economists' Outlook

Housing stats and analysis from NAR's research experts.

Commercial Lending Conditions Tighten in REALTORS® CRE Markets

Commercial real estate (CRE) notched another year of growth in 2015, favored by continued macroeconomic growth and broadening capital markets, according to the Expectations & Market Realities in Real Estate 2016: Navigating through the Crosscurrents report, released by Deloitte, the National Association of REALTORS®, and Situs RERC. While global economies decelerated, leading to volatility in financial indices, U.S. gross domestic product rose, employment growth accelerated toward the tail end of the year, and housing prices reached new heights. In addition, the Federal Reserve signaled a shift in its monetary policy by raising its target funds rate, as core inflation hovered around its target range of 2.0 percent.

Commercial vacancy rates declined for the core property types. Availability is expected to continue contracting for office, industrial and retail properties in 2016. Vacancies for apartments are estimated to rise, due to gains in supply.  Commercial rents have risen across the board, and are projected to advance this year in the 2.5 percent to 4.0 percent range.

CRE sales volume continued its positive trend in 2015, with $534 billion in closed transactions, compared with $432 billion in 2014, based on data from Real Capital Analytics (RCA).  Most of the transactions reported by RCA are based on data aggregated at the top end of the market—above $2.5 million.

In contrast to the large commercial transactions reported by RCA, commercial REALTORS® managed transactions averaging $1.8 million per deal, frequently located in secondary and tertiary markets, and focused on small businesses and entrepreneurs.  The Commercial Real Estate Lending Trends 2016 report shines the spotlight on this significant segment of the economy—a segment which tends to be somewhat obscured by reports on Class A trophy commercial properties.

Most financing indicators in REALTOR® markets notched another year of sustainable recovery.  As CRE asset prices strengthened, financing improved in 2015. However, on the broader issue of lending conditions, REALTORS® pointed to a marked shift from the trend of the past five years. In 2016, 33 percent of respondents reported tightening lending conditions, a noticeable increase from the prior year’s 23 percent.  At the same time, the percentage of members who reported that lending eased dropped from 42 percent in 2015 to 31 percent in 2016.

lending conditions

The change in lending conditions seems to coincide with financial regulators’ renewed focus on banks’ CRE loans. Regulators have expressed concern that in light of CRE markets’ rapid rise in prices over the past couple of years, banks have loosened underwriting standards. While the rise in prices during 2015 was pronounced at the high end of the market ($2.5 million and above), in REALTOR® markets, price appreciation was more moderate. Moreover, prices have been declining at the higher end for the first few months of 2016.

sales prices

Bank lending remains an important source of CRE funding in REALTOR® markets, comprising 64.0 percent of capital. Local and community banks played a central role, with 31.0 percent of the market, followed by regional banks, at 25.0 percent. National and international banks accounted for a combined 9.0 percent of capital.

The incidence of failed transactions, due to lack of financing reached a new low. REALTORS® cite uncertainty from legislative and regulatory initiatives as the most relevant cause of bank capital shortage for CRE.

For more information and the full report, access NAR’s Commercial Real Estate Lending Trends 2016 at

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