The Mortgage Bankers Association’s (MBA) fourth quarter of 2018 Commercial/Multifamily DataBook is now available.
The report summarizes major trends that developed during the fourth quarter of 2018. Charts and tables provide historical information on commercial and multifamily real estate markets. A summarized portion of the introductory write-up, penned by Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research, is enclosed below. The full report can be read here.
The U.S. economy slowed its pace slightly at the end of 2018. During the fourth quarter, real gross domestic product (GDP) grew at a seasonally-adjusted annual rate of 2.2 percent – below the 2.9 percent growth for the year as a whole. The job market remained strong and tight. During the fourth quarter, job growth averaged 233,000 per month (higher than the 223,000 monthly average for the year as a whole), and the unemployment rate ended the year at 3.9 percent. Wages have been increasing, with average hourly earnings ending 2018 3.3 percent higher than in 2017.
CRE PROPERTY FUNDAMENTALS
Average national vacancy rates generally ticked up during 2018, as did asking rents. Apartment vacancy rates rose from 4.6 percent in Q4 2017 to 4.9 percent in Q4 2018, and rents rose 5 percent. For office properties, vacancy rates increased from 16.4 percent to 16.7 percent, and rents rose 2.6 percent. Among retail properties, vacancy rates rose from 10.0 percent to 10.2 percent and rents were up 1.6 percent.
Multifamily permits and starts remained strong, and the number of multifamily units under construction ended the year at 601,000 – a level that has been relatively stable since mid-2016 and remains higher than other periods going back to the mid-1970s.
Commercial and multifamily property sales transactions rose in 2018, with a total of $484 billion of sales of office, apartment, retail and industrial properties – a 14 percent increase from 2017. The increase was driven by a rise in entity-level transactions, which pushed industrial property sales up 25 percent and retail properties up 32 percent. Sales of apartment properties increased 12 percent, and office transactions rose 1 percent.
2018 ended on a strong note for commercial mortgage borrowing and lending, with fourth quarter originations 14 percent higher than in 2017, despite broader market volatility. Investor and lender interest in multifamily and industrial properties continues to drive transaction volumes, while questions about retail and office property markets have slowed activity for those property types.
An increase in fourth quarter originations for healthcare, multifamily and industrial properties led the overall increase in commercial/multifamily lending volumes in the fourth quarter compared to 2017’s fourth quarter. Last quarter saw a 61 percent year-over-year increase in the dollar volume of loans for healthcare properties, a 32 percent increase for multifamily properties, a 28 percent increase for industrial properties, and a slight increase (one percent) for retail properties. Originations decreased for hotel property loans (4 percent) and office property loans (3 percent).
MORTGAGE DEBT OUTSTANDING
2018 recorded the largest annual increase in commercial and multifamily mortgage debt outstanding since the Great Recession, and the largest increase in multifamily mortgage debt on record. Growth in multifamily mortgage debt made up almost half the total increase in debt outstanding, and Fannie Mae, Freddie Mac and FHA collectively accounted for two-thirds of the multifamily growth. The GSEs, life insurance companies, the CMBS market and banks all increased their holdings of commercial and multifamily mortgage debt during the year.