Banking technology has lagged behind for years in innovation, and the global pandemic accelerated the need for change. Now, modernizing commercial real estate lending may be the next big thing.
Banking tech is outdated and commercial lending hasn’t changed in decades. In 2019, 43% of US banks still used COBOL — a programming language created before the internet, that isn’t readily compatible with modern technology. Forbes Real Estate Council released a statement that reads, “Reluctance to adopt new technology can stand in the way of innovation, and this, in turn, can lead to unintentional and potentially hazardous forms of disruption”, or as Chris Skinner, Author of Digital Bank, ValueWeb, and Digital Human, said, “Ignoring technological change in a financial system based upon technology is like a mouse starving to death because someone moved their cheese”. Technology can build agility in an evolving market, and commercial lenders’ slow adoption of technology puts them at a disadvantage.
As the economy adapted to a global pandemic, commercial real estate faced new challenges. Today, 33% of Americans work from home full time, 59% of retailers are concerned with rising rent costs, and retail and office spaces sit empty, with 20% retail vacancy in the 2nd quarter of 2020, a 17% office vacancy rate in the 4th quarter of 2020, and -305% hotel occupancy* from November 2019 to November 2020.
With changes in the commercial real estate landscape come changes in leasing demand. In 2021, commercial and multifamily lending will grow by 11%, reaching $486 billion
Companies will rethink how office spaces are used, the shift to remote work will increase demand for cloud and networking services and subsequent data centers, leisure travel will increase demand in some areas, and in retail, the shift to e-commerce will continue with more stores operating as mini-warehouses for curbside and delivery services, and continually driven demand for distribution sites, logistics warehouses, and storage spaces. Lenders are still interested in deals with strong, long-term value, so how lenders define a quality property investment will look quite different in 2021 and beyond
Through 2020’s dynamic market changes, residential mortgage lenders barely missed a beat by using technology, but regardless, commercial lenders need digital solutions. Prepare for the unexpected and join the future of commercial lending by joining the shift to upgraded technology.