Increased competition among lenders and low interest rates, coupled with demand for new product, has prompted an increase in ground-up loans.

Construction lending in the second quarter of 2014 rose four percent from the prior three-month period, hitting $223.4 billion, the largest increase since bottoming out last year, according to the Federal Deposit Insurance Corporation. The vast majority of this lending is for the commercial real estate industry, due to improving fundamentals across property sectors.

In some places, especially parts of Texas, new development is considered necessary by industry followers as vacancy rates continue to fall. NAIOP projects that year-over-year growth in construction spending will rise between eight and 15 percent between 2014 and 2015. That’s on top of a 24 percent increase last year, hitting just under $376.4 billion.

Demand for new medical office space will continue to grow as the boomer generation settles into retirement. In an interview with GlobeSt.com, Al Rabil, CEO of Kayne Anderson Real Estate Advisors, suggests that the 11,000 Americans who will turn 65 every day through 2030 will create an unavoidable need for more facilities.

Outlet and discount chain growth, fueled by the drawn-out recovery, has prompted demand for new retail space. About 21 million square feet of outlet centers are forecast for development by 2016, according to a JLL report, growth partially driven by a nine percent uptick in rents and sales per square foot from 2012 to 2014. With a construction-lending increase these plans will likely come to fruition.

The demand seems to be ripe in the industrial sector, as well. Though the absorption rate is expected to drop in 2016, reports NAIOP, there will still be a demand for 174 million square feet of space. That’s on top of 205 million square feet in 2015 and 211 million square feet this year. All of that demand, coupled with a construction-lending increase, is likely to lead to more industrial building.

Although the recovery of the office sector has been sluggish, in a few cities, demand has led to new construction. Seven cities account for 75 percent of the 47 million square feet of office construction underway, according to Cushman & Wakefield. In Houston and New York City, for example, the increase in construction lending is expected to help more projects to get off the ground.

As credit markets open up and development continues to grow, we see ripe opportunity to continue delivering Fundrise investors top-quality, high-yielding commercial real estate investments for both value-add and ground up-assets in major metro areas.

Image Source: Jakob Montrasio