As we prepare our Thanksgiving table this year, commercial real estate (CRE) lenders have a lot to be thankful for. Since the financial crisis, the CRE market has enjoyed a record run. FDIC-insured bank commercial real estate loan portfolios reached nearly $2.4 trillion as of the first quarter of 2019, reflecting 26 consecutive quarters of growth. Although that growth has begun to slow in the latter stages of a decade-plus economic expansion, the tidings bode well for another solid CRE lending year in 2020.
A Cornucopia of Favorable Conditions
2019 has been a good year for CRE lending. Consider:
Some Turkeys in the Wings?
Despite these positive current conditions, the forward outlook is less certain. The CRE market faces some challenges as we look out over the next year or two:
Demographic shifts to drive geographic growth
Longer-term, significant changes in the country’s demographic makeup will inspire shifts in real estate markets. The massive Baby Boomer and millennial generations will impact markets significantly over the next decade and beyond.
As millennials mature and start families, they are moving out of large cities to smaller urban and suburban areas. However, this generation’s vision of suburban nirvana differs from their predecessors’, as they seek all the conveniences and active vibe of modern city life. Mid-sized metros like Hoboken and Summit, NJ are prime examples, featuring robust transportation networks and vibrant, walkable city centers filled with trendy restaurants and boutiques.
Boomers, meanwhile, are rapidly retiring from the workforce and entering their golden years. This generation maintains an active lifestyle, and its understanding of retirement and “taking it easy” diverges from previous generations’. The needs of this generation are still being determined, and boomers’ ultimate impact on housing and commercial real estate will be nothing if not significant.
With these trends in mind, the hottest real estate markets include mid-sized cities in the southern U.S., including Austin, Raleigh/Durham, Nashville, and Charlotte, which share in common excellent weather, a plethora of educational and cultural institutions, and thriving, hip communities.