- Major US banks are actively growing their commercial real estate loan portfolios again, with Bank of America and several other lenders reporting higher CRE loan balances in the second quarter of 2026 — a reversal from the prior 2-3 years when banks were aggressively reducing CRE exposure amid fears of a wave of office vacancy-driven defaults; the return to CRE lending reflects several converging factors: office markets have stabilized significantly below their pandemic-era peaks but above feared catastrophic scenarios, interest rates (while elevated) have stopped rising and are expected to decline eventually, property valuations have largely reset to levels that provide banks with more comfortable loan-to-value ratios, and the alternative lending opportunities in other categories have become more competitive, pushing banks back toward CRE as a yield-generating asset class.
- The broader context is that big banks are actively hunting for balance sheet growth: deposits have been stable or growing, net interest margins — while down from their 2023 peak — remain healthy, and the banks that have been most selective about loan growth are now facing pressure from investors to demonstrate lending activity that translates into revenue; CRE is an attractive loan category for banks because it typically involves large loan sizes (reducing origination cost per dollar lent), provides collateral that banks understand well, and generates fee income from origination, syndication, and relationship banking activity around larger transactions; the “compete for loans” dynamic in CRE also reflects that private credit providers (direct lenders, CMBS markets) that had stepped into the CRE gap during the bank retreat are now facing competition as bank appetite returns.
- The office sector distinction is important: the bank return to CRE does not mean a uniform embrace of all property types; the CRE loan growth is likely concentrated in industrial (warehouse/logistics), multifamily residential, data centers, and high-quality Class A office in select markets — the same bifurcation that has characterized the CRE recovery broadly; troubled office assets in secondary markets remain challenged and banks are unlikely to aggressively expand exposure there; the distinction matters because bank-level aggregate CRE loan statistics can mask significant variation in credit quality — a bank growing CRE loans in industrial and data center categories is taking very different risk than one growing office exposure in markets where vacancy rates remain above 20%.
- The macroeconomic risk flag is the current interest rate environment: banks are returning to CRE at precisely the moment when 10-year Treasury yields have broken their 2026 highs (4.688%), driven by Iran war energy inflation; higher rates increase the debt service burden on commercial properties with variable-rate loans coming due for refinancing, which was the original concern that drove banks out of CRE; if the “higher for longer” rate scenario that bond markets are now pricing materializes, the same property owners who have been managing through elevated rates for two years face refinancing into an even more challenging environment; the bank CRE return is either well-timed (if rates decline as previously expected) or a concerning relapse (if the Iran war drives a sustained higher-rate environment).
What Happened?
Major US banks including Bank of America reported higher commercial real estate loan balances in Q2 2026, reversing the post-pandemic trend where lenders aggressively reduced CRE exposure over fears of office vacancy-driven default waves. Banks are now actively competing to grow their CRE loan books as the sector has stabilized and balance sheet growth pressures have intensified.
Why It Matters?
Bank appetite for CRE loans is one of the most important leading indicators of the commercial real estate recovery. When banks fled the sector in 2022-2024, it constrained property owner refinancing options and depressed transaction volumes. Their return suggests the major default wave fears have not materialized at the scale predicted, and that banks see CRE as an attractive growth category again. The key risk: banks are returning just as bond yields break to 2026 highs on Iran war inflation — the same rate environment that created the original CRE stress.
What’s Next?
Watch bank-level CRE loan growth rates in Q3 earnings for confirmation of the trend and details on which property types are getting the most new capital; watch office vacancy rates in major markets for any further stabilization that would validate the banks’ return; watch refinancing volumes for commercial properties, as bank appetite directly affects how easily maturing CRE debt can be refinanced at current rates; watch credit quality metrics (non-performing CRE loans, provision increases) for early warning if the bank return is generating deteriorating underwriting standards; and watch private credit direct lenders for how they respond to increased bank competition in the CRE space.
Source: The Wall Street Journal
