Lending Remains Largest Concern for Commercial Real Estate Market, Say Realtors®

WASHINGTON (May 13, 2016) — Realtors® specializing in commercial real estate expressed confidence in the continued recovery seen in the market but concern over the availability of commercial financing, during a commercial economic issues and trends forum at the 2016 REALTORS® Legislative Meetings & Trade Expo.

National Association of Realtors® Chief Economist Lawrence Yun discussed the forces affecting commercial markets and said that while the overall market is seeing continued recovery, trepidation remains about the availability of financing for smaller commercial properties.

Clients of Realtors® who practice commercial real estate traditionally receive financing from smaller local or regional banks, many of which have slowed their lending as a result of the new financial regulations. When the audience was polled about their major concerns for 2016, lending was the number one issue by a wide margin.

“The big guys have access to big money, while those specializing in smaller transactions do not have access to those sources. The largest banks can handle the compliance and higher capital requirements, but the smaller banks have less resources to meet these new regulations,” said Yun.

Yun called for a relaxing of regulation on small financial institutions. “Smaller sized banks do not cause systemic risk; if a small bank goes under, it will not affect the entire market. They, and the businesses that depend on them, need regulatory relief,” he said.

Despite these restrictions, the smaller commercial market is experiencing steady recovery, and market fundamentals have seen improvement across most sectors. Industrial and apartment sectors are seeing vacancy rates below pre-recession numbers, and the office sector is almost at its pre-recession level. However, recovery in the retail sector has remained sluggish, with vacancies still high and rents slow to rise.

“People are no longer walking around the city to buy things, they are going online and having their purchases delivered,” said Yun. “This has kept the retail sector from fully recovering, leaving it as the only ‘soft’ sector in commercial real estate.”

Mark Vitner, managing director and senior economist for Wells Fargo, spoke about the effect of the global economy on commercial markets. “The global outlook is so bad that Argentina and New Zealand are some of the few bright spots in the global economy,” said Vitner. “Devaluation of Chinese currency has had an enormous impact on the American economy. China accounts for 70 percent of the U.S.’ growth in exports, and the adverse effect it has had on the economies of our other trading partners has led to a slowdown in their economic growth.”

Vitner insists, however, that things could be much worse. “We may be seeing gross domestic product growth underperforming at 2 percent; however, Europe and Japan are seeing no growth, and many other countries have fallen into a recession,” he said. “Comparatively, the U.S. is performing well. As Jonny Cash said, ‘We are the cleanest dirty shirt in the closet.'”

For more information on the commercial real estate market, visit realtor.org/commercial.

The National Association of Realtors®, “The Voice for Real Estate,” is America’s largest trade association, representing more than 1.1 million members involved in all aspects of the residential and commercial real estate industries.

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Lending Remains Largest Concern for Commercial Real Estate Market, Say Realtors®