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Borrowing for commercial and multifamily buildings fell off sharply on an annual basis during the fourth quarter of 2023 as investors remained wary about the risk-heavy sectors and interest rates remained high.
Commercial and multifamily loan originations fell 25 percent in the fourth quarter of 2023 compared to a year earlier but increased 13 percent from the previous quarter, a quarterly increase in line with usual seasonal trends, according to data released Monday by the Mortgage Banker’s Association.
When divided into property types though, the pain in the office real estate sector becomes more evident, with loans for office buildings dropping 68 percent year over year and 32 percent quarter over quarter.
“Borrowing and lending backed by commercial real estate remained subdued to close out 2023,” said Jamie Woodwell, the MBA’s head of commercial real estate research. “The fourth quarter saw a small pick-up from the previous quarter, as is usually the case, but was still down about 25 percent from 2022’s already suppressed fourth-quarter pace.”
For all of 2023, mortgage originations were 50 percent below 2022 levels, with every major property type experiencing a decline, according to the MBA.
The overall drop in commercial loan originations was led by decreases in loans for office, healthcare, multifamily and industrial properties when compared to the fourth quarter of 2022. The dollar volume of loans for office buildings dropped 68 percent year over year as office real estate remains unattractive due to the popularity of remote and hybrid work.
Dollar volume meanwhile dropped 39 percent for healthcare properties, 27 percent for multifamily properties and 7 percent for industrial properties.
Retail properties, meanwhile, had a strong performance, with a 50 percent annual increase between the fourth quarters of 2023 and 2022, while hotel property loan originations outperformed all other property types in the report with an 80 percent annual increase.
On a quarterly basis, the fourth quarter saw a 131 percent quarterly increase in originations for hotel properties, a 91 percent increase in originations for retail properties, a 72 percent increase for healthcare properties and a 13 percent increase for multifamily properties.
Originations for industrial properties, meanwhile, decreased 11 percent, and originations for office properties decreased 32 percent quarter over quarter.
For 2023 as a whole, compared to 2022 as a whole, activity was 47 percent lower than the year before. Loan originations for healthcare properties decreased 67 percent from 2022, loans for office properties decreased 65 percent, loans for industrial properties decreased 49 percent, loans for multifamily properties decreased 49 percent, while retail properties charted a 27 percent decrease and hotel properties decreased 10 percent.
