The Federal Reserve Bank of St. Louis has released a new analysis indicating that commercial real estate lending by U.S. banks has been slowing and reached an 11-year low in the fourth quarter of 2024.
That might appear to contradict reports showing an increase in lending. However, activity can rise in some respects while declining in others.
Start with the good news, CRE investment and lending surged in the first quarter of 2025, according to the CBRE Lending Momentum Index, which grew by 13% quarter-over-quarter and 90% year-over-year in the first three months. Banks were 34% of the closings by non-agency lenders. That was up from 22% in the first quarter of 2024.
Newmark’s Q1 25 State of the U.S. Capital Markets report said that CRE debt origination activity increased by 42% year-over-year in the same quarter. Bank lending was only 4% below first-quarter averages from 2017 to 2019 and was up 56% year-over-year.
That said, the Federal Reserve’s April 2025 Senior Loan Office Opinion Survey said that for CRE loans, bank standards were either unchanged or tighter, and demand ranged from unchanged to weaker.
And so, there has been greater CRE lending by banks, meaning positive growth. But that is a calculus first derivative measurement. What the St. Louis Fed examined was the second derivative, or how quickly those increases were changing.
Examining the monthly levels of CRE loans by all commercial banks, as reported by the Board of Governors of the Federal Reserve System, reveals an ongoing decline in the pace of year-over-year decreases since January 2023, when the annual comparison stood at approximately 13.2%. In April 2025, the year-over-year change was 0.32%. That is still almost two and a half years of year-over-year gains. The numbers are larger, but the pattern suggests that unless there is an almost immediate change, the volume of CRE loans held by banks will soon begin to decline from its current levels. That last time that happened was in September 2009, when the real estate industry began to implode.
The St. Louis Fed offered several reasons why bank lending might be falling, including higher land, labor and materials prices, as well as higher property-related costs such as taxes and insurance. Higher interest rates make borrowing more expensive. This all combines to make it more difficult to construct project plans that pencil out.
© 2025 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to asset-and-logo-licensing@alm.com. For more information visit Asset & Logo Licensing.
