How much will the commercial mortgage market grow in 2021?

by David Kitai15 Feb 2021

The MBA is forecasting commercial and multifamily lending to increase 11% in 2021, bringing total volume up to $486 billion. While this is positive news for hard-hit commercial mortgage sectors, it represents only a partial recovery from pre-pandemic lending levels. As with much of the economic story in the past year, that recovery is predicted to be highly sectoral and differentiated between asset types. Nevertheless, it offers an opportunity for mortgage pros working in the commercial space to win again this year.

“That 11% increase might look a little odd in the throes of the pandemic and the recession that it caused, but that’s coming off a 27% decline last year,” said Jamie Woodwell (pictured) VP of commercial real estate research at the MBA. “We saw markets hit a very rough spot in 2020…Q2 and Q3 were each down by 50% from where they had been a year earlier and when we got to the fourth quarter, production was only down 18% from the year earlier. We started to see a bit of a bounceback in Q4 and we think a lot of that momentum is going to carry forward into 2021 as well.”

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The MBA’s forecast also predicted a 7% volume increase in multifamily lending, after a 17% drop last year. Woodwell noted that multifamily fared better from a volume standpoint than most CRE last year because of an uptick in refi activity, even as purchase activity was driven down. The sector, therefore, doesn’t have as far to bounce back as other areas might. While low interest rates drove some of that refinance activity, Woodwell believes that by the time rates rise in any meaningful way, sales activity in the multifamily space will have recovered.

Along with predicted strength in multifamily, Woodwell expects industrial will remain the favored property type for investors and lenders. Both inventory and multifamily, he explained, come with more certainty around how they’ve navigated the pandemic and what awaits them on the other side.

Woodwell also noted that the recovery in commercial real estate will likely become more broad-based by the second half of this year as mass vaccination plans begin to take hold and government stimulus programs make their impact felt. Despite 77% and 70% declines in hotel and retail mortgage activity last year respectively, Woodwell believes that as the pandemic comes to an end, investors and lenders will be more sure about those spaces, prompting some rebound at least.

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Nevertheless, questions persist for mortgage professionals and economists alike. The vaccine rollout is in its early stages and questions remain around how long it will be before immunity takes hold and when different parts of the economy are allowed to open up. There are also questions around changes to consumer preference and the nature of the workplace which can’t be answered until the pandemic truly appears to be behind us. While these questions remain unanswered, mortgage professionals can take some hope from the MBA’s prediction, but Woodwell stressed the importance of staying light on your feet.

“The pandemic reinforced the need to be nimble in this industry,” said Woodwell. “If you look at the different recessions we face, each one of them has hit different commercial property types in different ways. This downturn is no different. The one thing that’s likely about this downturn is it’s probably going to be much sharper than previous downturns, both on the downside coming into it, but also on the upside coming out. That comes with both its own set of challenges and its own set of opportunities.”