Commercial Real Estate (CRE) Lending Meets with Higher Rates….Maybe

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Commercial Real Estate (CRE) Lending Meets with Higher Rates….Maybe

Pen on Positive Earning Graph

The Bureau of Labor released May’s employment numbers and they are showing a nice steady growth. Around 217,000 new jobs have been created, many in the CRE Supporting Industries. Business investments are increasing or at least poised to increase and one key piece in that is the willingness of banks to lend to such projects.

It has been predicted that business lending will grow at a near double-digit rate over the next couple of years. Banks appear to have eased their lending policies for commercial, industrial, and commercial real estate loans; and these institutions reported stronger demand for both types of loans over the quarter. Concerns are growing in the commercial real estate sector that the tactful balance  for banking might be disrupted.  First, we have easing loan conditions with a bank’s willingness to lend.  We also have a new demand from borrowers because they want to invest.  This  may all be thrown off kilter if interest rates rise; which is a possibility, sooner rather than later, if the economy continues on this track.

The combination of healthy, steady job growth along with positive underlying details suggests that the economy is now entering a new phase of growth, which will lead to faster income growth, rising household demand, and a stronger housing sector. If the outlook pans out, it will mean that the Federal Reserve will continue to steadily taper its purchases of long term securities in the months ahead and will begin to set the stage for higher interest rates late this year and in early 2015.

Concerns of rising long-term interest rates on the horizon and that of consistent economic growth will dramatically affect commercial real estate investment in the years ahead. For the commercial real estate sector, the economic fundamentals are getting better; job growth will boost demand for office space, income growth will boost retail sales and rising consumer demand will lead to stronger growth in manufacturing and distribution.

By | 2014-07-02T13:25:23+00:00 July 2nd, 2014|Surety Blog|Comments Off on Commercial Real Estate (CRE) Lending Meets with Higher Rates….Maybe

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