Several real estate property sectors were “significantly challenged” during the coronavirus crisis since 2020, but some of the changes in the commercial real estate (CRE) area may be long-lasting, according to a report issued Friday by the federal insurer of bank deposits.
The Federal Deposit Insurance Corp. (FDIC) said in its Dec. 17 FDIC Quarterly that uncertainty in the office sector for real estate, a result of the coronavirus crisis, is likely to continue. “The issues facing the commercial real estate industry after the pandemic will be important to a large share of the banking industry, as commercial real estate is the largest loan category at more than 40 percent of banks,” the report stated.
The report noted that bank CRE delinquency rates remained low through third quarter 2021. However, it also pointed out that pandemic-related stress and “wind down of stimulus benefits” will be part of the CRE lending outlook.
As for other real estate sectors, the report stated, market conditions improved with economic recovery in 2021. The multifamily vacancy rate dropped to a 20-year low and demand for industrial space rebounded quickly, the report noted.
The report also looks at bank liquidity during the pandemic. It found, it said, that banks both benefitted and were challenged by the increased liquidity resulting from higher savings by customers. “Benefits of higher liquidity include less dependence on less stable sources of funding and an ability to respond effectively to unforeseen deposit account withdrawals,” the report stated.
“However, higher liquidity can also challenge bank earnings, depending on loan demand and the shape of the yield curve,” it added.