Will commercial lending be taking off in 2022?

Commercial lending is a key service for many credit unions. Commercial real estate is an ever-changing industry that constantly adapts to the world around it. After the COVID-19 pandemic put the world economy in question, business loans are back on the rise with a highly optimistic future in 2022 and beyond.

Learn more about trends experts are identifying in commercial lending and how this may impact credit unions in the year to come.

Why Commercial Lending?

Commercial lending happens when a business borrows money from a financial institution, such as a credit union. The company will use the money to do develop properties, expand operations or renovate a location. The details can vary — maybe it’s just starting and it needs money for expenses. It may need to move to a new location or take over another company through acquisition.

Many companies take out commercial loans because they want to expand their operations. To do so, they need to acquire land. Businesses with high profits and cash flow can turn those assets into real estate, one of the most profitable investments a company can make. They turn to commercial lending, which has seen record-setting trends at the beginning of this decade.

What Trends Are in Commercial Lending?

Commercial lending is an industry looking upward as society slowly exits from a pandemic-stricken world. The demand for commercial loans is increasing as the economy recovers. In 2021, Americans filed over 5.4 million new business applications, easily exceeding the 4.4 million from the year prior. In 2019, before the pandemic took over the globe, the United States saw about 3.5 million applications. These new businesses are a mix of companies planning to hire new employees and people who decided to become self-employed.

Multifamily mortgage lending is seeing an increase in demand because of the pandemic and record levels of capital. The Mortgage Bankers Association (MBA) projects that commercial real estate and multifamily mortgage lending will break $1 trillion for the first time because of a 13% increase in 2022. This record-breaking number comes from various factors, such as a constant uptick in property values.

What Niches Are Succeeding?

In commercial lending, trends come and go as the decades do. The industry continues to change, primarily because of the pandemic. Some current niches finding success in commercial lending include:

• Shared office spaces: The pandemic has changed working life in the United States and worldwide. About 60% of workers who can do their jobs at home are working remotely most or all the time. Some people still want that office feel, so they share space with other home-based employees. These workspaces are trending upwards because remote work and community office spaces are here to stay.
• Storage facilities: Since they’re moving the workplace to their homes, more people are investing in storage facilities, especially self-storage. Making a home office can be a challenging task. A remote worker may live in an apartment with children and other family members, limiting space in the household. They are turning to self-storage to store their belongings in the meantime.
• Warehouses: The pandemic expedited a trend brewing for years: retail stores shutting down because people are gravitating toward online-only sales. The rise in internet shopping has led to an increase in demand for warehouse facilities. Businesses can use these facilities to store extra items if they want to make a stockpile. Increased demand means companies are using these places to raise their shipping output.
• Vaccine studies: Companies like Pfizer, Moderna, and Johnson & Johnson have spent hundreds of millions of dollars to invest in vaccine research and production and will continue to do so in the foreseeable future. These companies need large facilities for developing and manufacturing vaccines. COVID-19 continues to create mutations, increasing the demand for booster shots, so these facilities will likely be around for much of this decade.

Commercial Lending Looks to the Future

Trends in real estate can change on a dime. The pandemic has altered peoples’ lives worldwide in many industries, including commercial lending. Demand for multifamily and single-family housing has reached record highs as people try to relocate. Businesses are gravitating toward online sales, increasing the demand for warehouses. Remote workers in some areas want shared office spaces.

As the demand for housing and vaccines remains high, the real estate market will likely stay on an uphill course for the next few years until new trends emerge.