During the second quarter of 2023, a survey of mortgage bank originators by the Mortgage Bankers Association (MBA) revealed that a variety of economic and market factors constrained the origination of commercial and multifamily loans.
Compared to the previous year, there was a significant 53% decrease in commercial and multifamily loan originations, primarily attributed to a substantial decline in activity across various asset categories. Health care properties experienced the most substantial annual drop, plummeting by 74%. Among the major property types, office spaces recorded the largest decline, falling by 66% compared to the levels in Q2 2022. Retail and industrial asset originations both saw a reduction of 55%, while the multifamily and hotel sectors experienced declines of 48% and 32%, respectively.
There was a quarterly improvement in business activity, evident by a 23% increase in originations during Q2 2023 compared to the previous quarter. The surge was primarily driven by the multifamily sector, which witnessed a notable 37% rise in originations when contrasted with the initial three months of the year. Conversely, retail originations experienced a decline of 13% from Q1 2023, and hotel originations retreated by 27%.
Jamie Woodwell, who leads commercial real estate research at the MBA, remarked that borrowing and lending in the commercial real estate sector maintained a subdued stance throughout the second quarter of 2023. While there was a slight improvement in origination volumes compared to the previous quarter, they remained considerably lower than the levels observed in an exceptionally robust quarter a year prior. The slowdown can be attributed to elevated interest rates, concerns surrounding property values, and uncertainties related to certain property fundamentals
Anticipated in the upcoming quarters is a gradual easing of the current stagnation, although the trajectory ahead will be contingent upon the direction taken by interest rates and other economic factors.
As outlined in the MBA’s latest forecast unveiled in early August, the projection for total commercial and multifamily mortgage lending this year has been revised downward to $504 billion. This figure represents a significant 38% decline compared to the total of $816 billion recorded in 2022. Nevertheless, the decrease anticipated for this year is anticipated to pave the way for a resurgence in 2024, with origination volume projected to climb back up to $856 billion.
