Economic Factors Influencing Commercial Property Loans

December 12, 2023

In the dynamic world of commercial real estate financing, understanding the myriad economic factors influencing commercial property loans can be complicated, to say the least. Commercial lending is not just figures on a balance sheet; they are deeply affected by various macro- and microeconomic elements. Numerous factors play pivotal roles, from the overarching health of the economy to the specific conditions in the real estate market. In this article, we briefly review the key economic influences, such as interest rates, economic growth, inflation, and more, that shape the world of commercial property lending.

Economic Growth:

The overall health of the economy impacts commercial property loans. In a growing economy, businesses expand, increasing the demand for commercial properties and, consequently, for loans. Conversely, in a downturn, loan demand may decrease.

Real Estate Market Conditions:

The supply and demand dynamics in the real estate market influence commercial property values and the perceived risk of lending for such projects.

Fluctuating Interest Rates:

Are among the mostsignificant factors affecting commercial property loans. Higher interest rates can lead to increased borrowing costs, influencing both the demand for loans and the feasibility of commercial real estate projects.

  • Impact on Real Estate: High-interest rates can significantly affect commercial real estate, especially for owners with near-term debt maturities or investors looking to develop or acquire properties​​.
  • Lending and Investment Strategies: Rising interest rates can lead to a reevaluation of deal economics, with lenders becoming cautious about the impact on debt service coverage ratios​.

Stabilizing Inflation:

High inflation can lead to higher interest rates, which can increase the cost of borrowing. It can also affect the value of properties and rental incomes, impacting the feasibility of commercial real estate investments.

  • Construction and Operating Costs: Inflation directly impacts property construction and operating costs. Costs driven by supply chain disruptions and increased wages due to worker shortages are significant factors​​.
  • Utilities and Insurance: Costs for utilities and property insurance are also likely to remain high, partly due to climate change and geopolitical factors​​.

Consumer Confidence and Recession:

The fear of a recession can impact consumer spending and investment decisions. Additionally, the level of consumer confidence significantly influences the retail and hospitality sectors, affecting both the demand for and value of these properties.

Global Economic Trends:

In today’s interconnected world, global economic trends can have a significant impact on local economies and, by extension, on commercial property loans.

Government Policies:

Regulatory policies, including zoning laws, tax policies, and real estate regulations, can impact commercial property investment and lending. For instance, favorable tax treatment for certain types of properties can stimulate demand for loans.

Employment Rates:

Employment levels in an area can affect the demand for commercial real estate. Higher employment usually leads to increased demand for office and retail spaces, influencing the number of commercial property loans.

Lender Confidence and Credit Availability:

Economic factors can affect lenders’ confidence and their willingness to finance commercial real estate projects. Financial stability tends to make lenders more willing to issue loans, while instability can make them more cautious. The broader availability of credit in the financial system can impact how easily borrowers can secure commercial property loans.

How the market responds is based on sector-specific impacts. Various commercial property sectors respond differently to these economic factors. For example, hospitality and retail might be cushioned against a downturn due to low unemployment rates and high job openings​​. Understanding these factors is crucial for investors, developers, and lenders in making informed decisions about commercial property investments and loans.


EB Mortgage is a locally owned mortgage company with experts in new home purchase, refinancing, and commercial loans. Our wholesale rates can’t be beaten. We offer more products, more options, and more solutions. Our “3C” Process is simple: complete our pre-approval request, consider options based on your requirements, and choose the offer that suits your needs best. Call us or e-mail us today! 

Written by the digital marketing team at Creative Programs & Systems: