Commercial Real Estate Lending Growth in 2022
Commercial real estate lending is rising, and the trend is accelerating. The commercial real estate market has been able to adjust and grow in recent years because of an increase in lending.
There are currently $25 billion worth of commercial real estate loans that are being offered. With this boom, commercial property values are rising and developers have the option to get funding for projects from a variety of different sources.
The rise in commercial real estate lending can also lead to a decrease in interest rates on mortgages. This means that borrowers will pay less money over time when they take out their mortgage loan. In addition, there may be more competition among lenders as well.
Why Commercial Real Estate Lending is Accelerating
The commercial real estate market is flourishing right now. There are many reasons, including strong economic growth, increased construction, and increased government investment.
One reason for the increase in commercial real estate lending is a decrease in interest rates and an increase in demand from consumers who are spending more on goods and services. Another factor contributing to this trend is an increase in construction-related lending.
With the housing market steadily growing and interest rates at all-time lows, banks have been eager to lend. Construction loans provide high-risk, short-term financing to developers, making them an important source of funding for property developers. The construction of commercial buildings, hotels, apartments, and condominiums typically leads to an increase in demand for commercial lending.
Consequences of Increased Commercial Real Estate Lending
It would be unwise to completely dismiss some of the consequences to the increase in commercial real estate lending. The rise of commercial mortgage-backed securities (CMBS) has been a boon for lenders, but it also created new risks and challenges that are worth considering before you sign on the dotted line.
The growth in commercial real estate lending can also lead to a rise in defaults on those loans. This means that lenders will need to take more risk when extending new loans.
How Technology Impacts Commercial Real Estate Lending Growth
Technological advances in commercial real estate offer great advantages to potential borrowers. These advances, such as investments in IoT, cloud, big data, and analytics will improve the accuracy of data used to measure risk before lending decisions are made.
For example, customized algorithms can help identify patterns in data that could have otherwise gone unnoticed. This shortened the due diligence process by increasing the accuracy of data being used.
The increasing reliance on technology is necessary for the commercial real estate industry as it makes more efficient use of data. Loan portfolios can be reviewed easily and accurately, and that lends itself well to machine learning and artificial intelligence.
The improved accuracy of data enables lenders to make more informed decisions about risk, which helps them lend more and lend faster. As the demand for loans grows, so does the competition among lenders. For borrowers, this means better rates and terms.
The Future of Commercial Real Estate Lending
Projections for commercial real estate lending growth is reasonably good for 2022. The CCRE reports that commercial real estate lending will grow by 9.8% in 2022 to about $202 billion. Mortgages provided for the commercial real estate industry are expected to make up the bulk of this growth. As the industry grows, so will the need for loans and other types of financing.
CXOs and mortgage lending CEOs are laser-focused on improving the efficiency and accuracy of lending decisions to meet rising demand. Mortgage lenders are expanding their networks with new and exciting technologies. Data and analytics allow lenders to collaborate more efficiently. New technologies such as machine learning, big data, and artificial intelligence will help further expand lending opportunities.
There are so many benefits to be gained by working with a reputable commercial real estate firm. It makes the process of acquiring commercial real estate easier and often more profitable. At Maddox Companies in Knoxville, TN, we work hard for our clients’ success in the commercial real estate market. Call or come by our office today to learn more about what we can do for you.