Various economic and market factors kept commercial and multifamily loan originations restrained in the second quarter of 2023, according to a quarterly survey of mortgage bank originators from the Mortgage Bankers Association (MBA).
On a year-over-year basis, commercial and multifamily originations were down 53% due to a heavy drop in activity across all asset classes. Among all property types, health care suffered the largest annualized decrease at 74%, while among major property types, office saw the largest decline at 66% below Q2 2022 levels. Originations for retail and industrial assets each decreased by 55% while the multifamily and hotel sectors fell 48% and 32%, respectively.
Business picked up on a quarterly basis, however, as Q2 2023 originations were up 23% from the prior quarter. The bounce was led by multifamily, which had a 37% increase in originations compared to the first three months of the year. On the flipside, retail originations slipped by 13% from Q1 2023 while hotel originations backtracked 27%.
“Commercial real estate borrowing and lending remained subdued in the second quarter of 2023,” said Jamie Woodwell, MBA’s head of commercial real estate research. “Origination volumes picked up from the first quarter but were less than half the level of a very strong quarter a year earlier. Higher interest rates, uncertainty about property values, and questions about some property fundamentals are all contributing to the slowdown.
“We expect the logjam to begin to break in coming quarters, but the path forward will depend on where interest rates and other aspects of the economy go from here.”
Per the MBA’s most recent forecast released earlier in August, total commercial and multifamily mortgage lending is now expected to drop to $504 billion this year, down 38% from the $816 billion total of 2022. This year’s dip, however, is projected to give way to a rebound in 2024, with origination volume reaching $856 billion.