Commercial Lending Declines, Office Attendance Edges Lower, Restaurant Sales Rise as Traffic Drops
Commercial Lending Declines
Commercial and multifamily lending cooled considerably in the third quarter, as borrowers and lenders responded to soaring mortgage interest rates. The Mortgage Bankers Association trade group said Tuesday that loan originations for the quarter declined 13% from year-earlier levels.
“After a strong first half of the year, rising interest and capitalization rates began to affect deal volume during the third quarter,” Jamie Woodwell, the trade group’s head of commercial real estate research, said in a statement. He said it would take time for the market to fully absorb changes, including a rapid rise in yields for investment alternatives such as 10-year Treasury notes.
Overall economic volatility has also created difficulties in placing valuations on property transactions. “The result has been the first of what may be many quarters of depressed borrowing and lending activity,” Woodwell said.
The banker group noted the number of loans tied to office properties was down 44% from the year-earlier quarter, with multifamily loans declining 16%, retail dropping 6% and industrial decreasing 4%. In contrast, lending backed by hotel properties rose 24% and healthcare property loans were up 61%.
Also Tuesday, CBRE reported that market volatility brought down the brokerage’s quarterly commercial lending momentum index in the third quarter, with loan closings declining 11.1% from the prior quarter and dropping 4.7% from the year-earlier quarter.
“The Federal Reserve’s hawkish stance to reduce inflation resulted in higher borrowing costs, more conservative underwriting and lower loan closing volume in the third quarter,” Rachel Vinson, president of debt and structured finance in CBRE’s capital markets division, said in a statement. “We expect debt capital to be constrained and demand for loans to be weak for the balance of the year.”
Office Attendance Edges Lower
For the third straight week, office use fell by less than 1% from the prior week, with major cities averaging 47.3% of pre-pandemic attendance for the week ended Nov. 2 in the latest tracking by security technology firm Kastle Systems. That was down from 47.6% in the prior week but remained not far off from the pandemic peak of 49% reached during the week ended Oct. 12.
Office attendance has held fairly steady since Labor Day for most of the 10 cities in Kastle’s “Back to Work Barometer,” based on anonymous keycard data from clients’ properties. Most cities have yet to reach 50% of pre-pandemic attendance.
The three Texas cities in the barometer held their usual top spots, with Austin at 61.9%, Houston at 56.9% and Dallas at 52.9%. Next came New York at 46.7%, Chicago at 45.4% and Los Angeles at 45%.
Restaurant Sales Rise
Even with their customers still battling high gas and grocery prices, U.S. restaurants managed to increase sales for a third consecutive month in September. Industry analytics firm Black Box Intelligence reported eateries posted 5.2% year-over-year, same-store sales growth, down slightly from the 5.3% annual growth rate in August.
However, analysts noted same-store foot traffic counts were down from a year earlier in all restaurant categories except fine dining during the third quarter. Foot traffic in September was down 1.9% from the prior month and dropped 3.6% from September 2021, marking the seventh consecutive month of negative traffic growth.
Quick service and casual family dining were the only two categories showing growth over 2019 guest counts during the third quarter, “revealing that guests may be trading down to less expensive options when choosing to dine out,” Black Box analysts said in a statement.
An Oct. 27 report on food trends from research firm NPD Group noted that U.S. consumer spending in 2020 and 2021 experienced a stimulus-fueled surge that extended into the first quarter of 2022. “But the spending spree ended by the second quarter when stimulus money dried up, and inflation and economic uncertainty took hold,” the report said.