The commercial sector is expected to see strong growth despite inflation
US commercial real estate lending (CRE) is forecast to grow even bigger despite the slow-burning housing crisis driven by rampant inflation.
A new industry analysis released by the Freedonia Focus Reports showed that commercial bank revenue is estimated to grow 5.8% annually in nominal dollars through 2026. Commercial bank assets are expected to increase 5% annually due to projected increases in loans and leases and inflation pushing up asset values.
“Banks will benefit from growth in economic activity and advances in consumer and business incomes to 2026,” the Freedonia Group said in a statement. “Gains in interest revenue are projected to outpace non-interest revenue due to rising interest rates as the Federal Reserve attempts to tackle the high inflation experienced in 2021 and 2022. In addition, higher inflation rates will increase the nominal value of loans sought and interest payments. However, inflation over the forecast period will reduce the value of loans and leases already held by banks.”
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According to the report, the value of gross loans and leases will climb 5.8% per year as the projected GDP growth in 2026 boosts demand for commercial properties. CRE lenders are projected to benefit from the continued growth forecast for residential and non-residential investment in structures. Commercial and industrial mortgage lending are also anticipated to advance based on rising equipment investment as manufacturing output continues to expand.
“Increases in disposable personal income will bolster personal spending and drive demand for consumer financing,” the group said. “Inflation during the forecast period will also add to growth in the value of gross loans and leases.”
The scope of the report covers commercial banks, the commercial banking subsidiaries of banks or financial holding companies, and the savings institutions (also known as savings and loans, or thrifts) insured by the Federal Deposit Insurance Corporation (FDIC).
