The commercial real estate market in the United States may have some work to do in order to ensure that this year is a success, as fewer investors are taking advantage of loans.
Commercial mortgage originations dropped 1 percent during the first quarter compared to the same three-month period in 2013, according to the Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations from the Mortgage Bankers Association. The figure was also 45 percent less than the fourth quarter's level, though the major gap may be due to seasonal trends.
Much of the decline year-over-year was due to drops in a couple of categories. The report showed that retail dollar volume fell by nearly 20 percent, while multifamily buildings had a 17 percent drop.
"Commercial and multifamily borrowing typically starts the year slowly, with less than one-fifth of the annual volume usually done in the first quarter," said Jamie Woodwell, vice president of commercial real estate research at MBA. "This year is looking to continue the trend. Lending by banks and life companies increased compared to last year's first quarter, but first quarter originations for Fannie Mae and Freddie Mac and for inclusion in commercial mortgage-backed securities (CMBS) were lower than during the same period last year. Taken together, commercial and multifamily mortgage originations started 2014 at the same pace they started 2013."
Construction increases notably
While some slowing conditions were noted in the mortgage market, there may be some other reasons to be optimistic about commercial real estate progress. According to a report from McGraw Hill Construction, overall construction starts rose 7 percent in March to a rate of $521.4 billion.
"The slow start for construction activity in early 2014 can be attributed to tough winter weather conditions, in combination with the up-and-down pattern that's frequently been present during the hesitant upturn witnessed over the past two years," stated Robert Murray, chief economist for McGraw Hill Construction. "This is particularly true for nonresidential building, which bounced back sharply in March after depressed activity in January and February, alleviating some concern that its recovery may be stalling."
Nonresidential building had a notable month, as its spending rose to a rate of $176.3 billion in March, the report added. This was the first month of the year where the figure was positive.