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Market Uncertainty Damps Commercial Real Estate Lending in Q2 2023

CBRE Lending Momentum Index’ Declines 5.4% From Previous Quarter

August 14, 2023

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Aaron Richardson

Director of Communications, Global Capital Markets/VAS

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Commercial real estate lending slowed in the second quarter of 2023 as market uncertainty weighed on available debt capital, according to the latest research from CBRE.

The CBRE Lending Momentum Index, which tracks the pace of CBRE-originated commercial loan closings in the U.S., declined by 5.4% from Q1 2023 and 52.2% when compared with the strong loan volume of a year earlier. The index closed Q2 2023 at a value of 193.

A graph of CBRE Lending Momentum Index from June 2010 to June 2023 described in the paragraphs above and below. 

“Despite ample available debt, commercial lending has been hampered by choppy markets,” said Rachel Vinson, President of Debt & Structured Finance, U.S. for Capital Markets at CBRE. “Borrowers who have to transact in the current environment are turning to shorter-term fixed loans until stability returns. Costlier credit with tighter terms continues to encourage many to sit on the sidelines."

Banks accounted for the largest share of CBRE's non-agency loan closings for the fifth consecutive quarter, with 43.4% of the total in Q2 2023, up from 41% in Q1 2023. Smaller regional and local banks were the most active in this space, with 25% of bank loans used to fund construction projects, mostly in the industrial sector. Approximately 43% of the loans were refinancings, while the remainder was allocated for acquisition loans.

Chart comparing Lender Composition Q2 2023 to Q2 2022 described in detail in the paragraphs below 

Life companies accounted for 26.8% of closed non-agency loans, up from 23% in Q1 2023, focused on permanent multifamily and industrial loans.

Alternative lenders, such as debt funds and mortgage REITs, took 26% of Q2 2023 closings, up from 20.1% in Q1 2023, but faced challenges on floating-rate bridge loans amid wider spreads and interest rate cap costs. Collateralized loan obligations (CLO) totaled just $2.1 billion in H1 2023, versus nearly $24 billion in H1 2022.

CMBS conduit lending shrank to 3.8% of non-agency loan volume in Q2 2023, down from 15.7% in Q1 2023. Industrywide CMBS origination reached $16.5 billion in H1 2023, down from $49.9 billion in H1 2022.

Underwriting criteria remained tight in Q2 2023, with slightly lower underwritten cap rates, debt yields and interest rates than last quarter. Compared to a year earlier, the average underwritten cap rate increased by 43 basis points (bps) in Q2 2023 to 5.52%, and average loan constants rose to 6.61%, up from 5.43% a year earlier.

Government agency lending on multifamily assets totaled $27.8 billion in Q2 2023, down from $33.4 billion in Q2 2022.

CBRE’s Agency Pricing Index, reflecting average fixed agency mortgage rates on 7–10 year permanent loans, rose 9 bps in Q2 2023 and 154 bps year-over-year to 5.41%.

About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBRE), a Fortune 500 and S&P 500 company headquartered in Dallas, is the world’s largest commercial real estate services and investment firm (based on 2022 revenue). The company has approximately 115,000 employees (excluding Turner & Townsend employees) serving clients in more than 100 countries. CBRE serves a diverse range of clients with an integrated suite of services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.