Top industrial, warehouse CRE lenders lean in as oversupply cools

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Most of the top US bank lenders on industrial and warehouse properties increased their exposure in the fourth quarter of 2023, as the property sector served as a refuge within the commercial real estate space.

Twenty-two of the 34 banks that disclosed industrial and warehouse loan portfolios of more than $500 million as of the end of 2023 increased their exposure to the property type quarter over quarter, according to S&P Global Market Intelligence data. Twelve reported reduced exposure.

Banks’ lending on industrial properties ramped up in 2023 amid optimism about online retail and growing worries about other real estate property sectors — especially office, in which borrowers have been grappling with reduced demand.

A surge in new property completions weakened property owners’ pricing power as 2023 progressed, but analysts said there are signs that oversupply could be waning, even as future demand for warehouse space remains uncertain.

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The 450 million square feet of industrial space now under construction across the US represents 2.9% of existing stock, down from a peak of 715 million square feet, or 3.9% of existing stock, in mid-2022, Morgan Stanley analyst Ronald Kamdem wrote in a Jan. 11 note. Still, Kamdem noted, the real estate services and investment firm CBRE projects completions to outpace demand throughout 2024 and 2025, leading to normalized availability rates — which measure direct and subleased vacancy — of 7.4%, up from 7.1% in the 2023 fourth quarter.

The industrial sector is “definitionally oversupplied,” but demand for warehouse space appears to be showing signs of life, Wedbush analysts Richard Anderson and Jay Kornreich wrote in a Feb. 9 note.

“While e-commerce is far from the only game in town, we would argue against the notion that the secular story for industrial is waning,” they wrote. “A stabilizing or improving economy is all that is needed to jump start demand.”

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Top lenders increase exposure

Wells Fargo & Co. increased its exposure to industrial and warehouse loans by 4.2% sequentially in the fourth quarter to $25.4 billion, or 2.7% of gross loans. Bank of America Corp. had the second-largest disclosed industrial and warehouse book at $14.7 billion, up 1.9% from a quarter earlier.

The largest increase in exposure to the sector from banks that disclosed more than $500 million in industrial and warehouse loans belonged to First Citizens BancShares Inc., which grew its portfolio by 15.6% quarter over quarter to $2.9 billion. Fifth Third Bancorp increased its non-owner-occupied industrial loan book by 9.1% sequentially to $1.2 billion.

Among the major industrial and warehouse lenders to decrease exposure to the sector in the quarter was Pinnacle Financial Partners Inc., which trimmed its portfolio by 1.4% quarter over quarter to $2.3 billion, or 6.9% of gross loans. Synovus Financial Corp. posted the largest disclosed decrease in industrial and warehouse loans, a 13.3% drop to $854.5 million, or 2.0% of gross loans.

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