Lenders are predicting “substantial growthˮ in commercial real estate lending volume over the next year, and believe market-underwriting standards will ease for office, retail and industrial properties.
In it’s fourth survey of CRE lending sentiment, the Real Estate Lenders Association (RELA) found that a net share of 48 percent of lenders expect to grow the dollar volume of their lending activities over the next year, with more than 50% of lenders anticipating an increase of loan originations in the multifamily, office and retail sectors, respectively.
Survey respondents also expect pricing to decline and loan demand to increase for both term and construction lending over the next year.
Additionally, lenders report that target debt yields for new loans have declined in the past year, despite higher Treasury yields.
The survey features analysis by RELA’s national economist Dr. Sam Chandan, president & chief economist at Chandan Economics and a professor in the associated faculty at the Wharton School.
A majority of lenders expect underwriting standards for office, retail and industrial properties to ease in the coming year. However, expectations for multifamily and hotel terms were more reserved, likely due to a more mature recovery in the multifamily sector and higher perceived risks in hotel lending.
Lenders reported a current target debt yield centered between 8.0 percent and 8.5 percent for new multifamily originations, while the anticipated target debt yield range for commercial properties was 150 basis points higher at 9.5 to 10.0 percent.
Although debt yields have fallen over the last year, fewer lenders expect that trend will persist as interest rates rise.