MBA Reports Commercial Real Estate Market Remains Strong

October 2, 2018

During the first half of 2018, commercial real estate sales volume was 3 percent higher than a year earlier, led by increases in multifamily (up 8 percent to $70 billion) and industrial (up 26 percent to $39 billion) properties, according to the MBA’s Second Quarter 2018 Commercial/Multifamily DataBook.

Meanwhile, sales of office properties declined by 13 percent (to $58 billion) while sales of retail properties were relatively flat at $34 billion.

According to the MBA, major property price indices show property values either continuing to climb (up 1.8 percent during the second quarter according to the RCA CPPI) or generally plateauing (down 0.5 percent during the second quarter according to the NCREIF TBI). The indexes agree that prices currently stand approximately 25 percent above the 2007 peak.

On the loan origination front, commercial and multifamily real estate borrowing and lending continues to track with last year's level. The MBA reports that investor demand for multifamily properties and hotels are helping push originations higher, even as loan demand for retail properties is down. New loan demand continues to be supported by still-low long-term interest rates, growing property incomes and rising values.

The latest DataBook revealed that the second quarter saw a 22 percent year-over-year increase in the dollar volume of loans for hotel properties, a 17 percent increase for multifamily properties, a one percent increase for retail properties, a four percent decrease for office properties, a 10 percent decrease in industrial property loans, and a 16 percent decrease in health care property loans.

Addition highlights of the DataBook include:

  • The U.S. economy showed solid strength during the second quarter. Real GDP grew at a seasonally adjusted annual rate of 4.2 percent during the quarter and job growth has continued, with a 3.9 percent unemployment rate as of August. Wage growth has also begun to take hold, with average hourly earnings up 2.9 percent between August 2017 and August 2018.
  • The balance of mortgage debt on commercial and multifamily properties grew faster during the first half of 2018 than during any other first half since 2007. The four major investor groups all increased their holdings, and multifamily mortgage debt outstanding topped $1.3 trillion for the first time.
  • It is hard to overstate how low commercial and multifamily mortgage delinquency rates are today. Only 0.03 percent of the balance of commercial and multifamily mortgages held by life insurance companies is delinquent, as is 0.01 percent of the balance of multifamily mortgages held by Freddie Mac. The delinquency rate for loans held on banks' balance sheets is the lowest in the series history.

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